The internal rate of return (IRR): I.rule states that a typical investment project with an IRR that is less than the required rate should
Be accepted.
II)is the rate generated solely by the cash ﬂows of an investment.
III)is the rate that causes the net present value of a project to exactly equal zero.
IV)can effectively be used to analyze all investment scenarios.
A)I and IV only.
B)II and III only.
C)I, II, and III only.
D)II, III, and IV only.
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

The first statement is incorrect as the rule states that a project should be rejected if its IRR is less than the required rate. The second statement is correct as IRR is calculated based on the cash flows of an investment. The third statement is also correct as IRR is the discount rate at which the NPV of an investment becomes zero. The fourth statement is incorrect as IRR may not be effective in analyzing all investment scenarios. Therefore, the best choice is B as it includes only the correct statements.

The Internal Rate of Return (IRR): I