Which of the following is a true statement regarding the internal rate of return in capital budgeting?
A) it provides the same basic information as the net present value method.
B) it calculates the net present value of future cash flows.
C) it calculates the proposal's rate of return.
D)it doesn't consider the time value of money.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) calculates the rate of return of a proposal and considers the time value of money. It is the discount rate at which the net present value (NPV) of all cash flows from a project equals zero. Therefore, option A (it provides the same basic information as the net present value method) is incorrect as the NPV method calculates the present value of future cash flows. Option B (it calculates the net present value of future cash flows) is also incorrect for the same reason mentioned previously. Option D (it doesn't consider the time value of money) is incorrect, as the IRR specifically considers the time value of money.

Which of the Following Is a True Statement Regarding the Internal