Which of the following is / are correct? 1. The IRR is the discount rate which...

Which of the following is / are correct?
1. The IRR is the discount rate which equates the present value of an investment's expected costs to the present value of the expected cash inflows.
2. If the cost of capital for this investment is 9%, the investment should be rejected because its net present value will be negative.

Solutions

Expert Solution

IRR is a discount rate which make the net present value of the cash inflow and cash outflow become zero. so it means the first option is the correct.

COst of the capital of the any organization is the main parameter for determine the acceptabilty of any project. When the Net present value of the any project is negative it means there is no meaning to invest in that project. because we are not getting the our cost also. So the second option is also correct.

Answer = Both Options are correct as below,

1. The IRR is the discount rate which equates the present value of an investment's expected costs to the present value of the expected cash inflows.
2. If the cost of capital for this investment is 9%, the investment should be rejected because its net present value will be negative.

jeff jeffy answered 2 years ago

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