Which of the following statements is true?
A)The internal rate of return is equal to the required rate of return when the net present value is equal to zero.
B)The internal rate of return is greater than the required rate of return when the net present value is negative.
C)The internal rate of return is less than the required rate of return when the net present value is positive.
D)None of the given options is true.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the interest rate at which the net present value (NPV) of the investment is zero. Therefore, when the NPV is zero, the IRR is equal to the required rate of return. Option B is incorrect because a negative NPV indicates that the investment is not generating sufficient cash flows to cover the required rate of return (i.e., the IRR is less than the required rate of return). Option C is incorrect because a positive NPV indicates that the investment is generating cash flows that exceed the required rate of return (i.e., the IRR is greater than the required rate of return).

Which of the Following Statements Is True