By deﬁnition, the net present value is equal to zero when the discount rate is equal to the:
A) Average account rate of return.
B) Rate used in the discounted payback formula.
C) Proﬁtability index rate.
D) Internal rate of return.
E) Crossover rate.

Question

Quizplus · Accepted Answer

The net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. At the discount rate that makes NPV equal to zero, we have the internal rate of return (IRR). Therefore, the correct choice is D, the internal rate of return.

By Deﬁnition, the Net Present Value Is Equal to Zero