Question

In: Finance

1(a). When NPV=0, then: Select one: a. IRR less than 0 b. IRR=required return c. IRR...

1(a). When NPV=0, then: Select one:

a. IRR less than 0

b. IRR=required return

c. IRR greater than 0

d. IRR greater than required return

e. IRR=0

1(b). The relationship between NPV of a project and the required rate of return is: Select one:

a. positive

b. random

c. negative

d. determined by the relationship of NPV to IRR

e. none of the answers is correct

Expert Solution

1a) The correct choice is b

Explanation : - The internal rate of return method is closely linked to the net present value method. The internal rate of return (IRR) of a project is the cost of capital or the rate of return that would result in the project breaking even. That is the rate of return that makes the net present value equal zero.

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1b) The correct choice is b : - Random

Explanation :- The calculation of the present value of the future cash flows requires the selection of a discount rate (also referred to as the target or hurdle rate). The rate used should be the minimum rate of return that management is willing to accept on capital investment projects. The rate used should be no less than the cost of capital—the rate management currently must pay to obtain funds. The net present value method determines whether a project's rate of return is equal to, higher than, or lower than the desired rate of return. If the NPV is zero, the project's actual rate of return is equal to the required rate of return.

jeff jeffy answered 2 years ago

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