1. Consider a standard project whose NPV is exactly $0. Which of the following i
ID: 2731947 • Letter: 1
Question
1. Consider a standard project whose NPV is exactly $0. Which of the following is true of the same project’s internal rate of return if the required rate of return is 14%? a. The IRR < 0% b. The IRR < 14% c. The IRR = 14% d. The IRR = 0% e. The IRR > 0% 2. Shares of CDT have been trading on the New York Stock Exchange over the last 35 years from a low of $2 to a high of $62. You buy one share of CDT today for the price of $25. What is your maximum loss on the share? a. $60 b. $62 c. $37 d. $23 e. $25Explanation / Answer
Option C is correct
IRR is the rate of return at which NPV would be zero. Here At 14% rate, NPV is zero. Therefore, this required rate is nothing but the internal rate of return or IRR.
NPV is 0 = Cash inflows x PV factor at IRR – initial Investment
In other words, it can be said that at IRR, the PV of cash inflows is equal to initial investment.
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