The Internal Rate of Return (IRR) Method

question 29

Multiple Choice

The Internal Rate of Return (IRR) method

• A) estimates the current value of future cash flows.
• B) estimates the rate of return that can be expected from an investment.
• C) takes into account that cash received today is more valuable than cash received later.
• D) compares the present value of future cash flows with cash outlay.

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Definitions:

Economic Profit

The surplus remaining after total costs are subtracted from total revenue, considering both explicit and implicit costs.

Zero Profit

A situation where a firm's total revenues are exactly equal to its total costs, leading to no net gain or loss.

Breaking Even

The situation in which a firm is earning exactly a normal rate of return.

Economic Profit

This refers to the surplus remaining after subtracting both visible and hidden costs from total revenues, highlighting a firm's genuine financial gain.