Which one of the following is correct?
A) Cash flows are used to calculate the internal rate of return.
B) Accrual income is used to calculate the payback period.
C) Cash flows are used to calculate the annual rate of return.
D) Accrual income is used to calculate the net present value.

Question

Quizplus · Accepted Answer

Cash flows are commonly used in calculating the internal rate of return (IRR), which is a metric used to estimate the profitability of potential investments or projects. The IRR is the discount rate that makes the net present value (NPV) of an investment equal to zero. Therefore, cash flows are essential in calculating this rate. Accrual income, on the other hand, is not a common factor in calculating the payback period, net present value, or annual rate of return.

Which One of the Following Is Correct