Which of the following statements related to the internal rate of return (IRR) i
ID: 2799215 • Letter: W
Question
Which of the following statements related to the internal rate of return (IRR) is correct?
In most instances, if an investment is attractive based on its IRR, it will have a negative NPV.
An investment should be undertaken whenever the discount rate exceeds its IRR.
It is a discount rate that makes the net present value (NPV) of all cash flows from a particular project positive.
IRR is the best tool available for deciding between mutually exclusive investments.
In most instances, if an investment is attractive based on its IRR, it will have a negative NPV.
An investment should be undertaken whenever the discount rate exceeds its IRR.
It is a discount rate that makes the net present value (NPV) of all cash flows from a particular project positive.
TheIRR is the best tool available for deciding between mutually exclusive investments.
The IRR calculates an investor's breakeven rate of returnExplanation / Answer
IRR is the rate at which project NPV will be ZERO. So this can be said as hurdle rate or break even rate. If the required return is less than IRR, project should be accepted otherwise rejected.
Hence, correct option is The IRR calculates an investor's breakeven rate of return.
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