The Internal Rate of Return of a Capital Investment

question 5

Multiple Choice

The internal rate of return of a capital investment

• A)Changes when the required rate of return changes.
• B)Is equal to the annual net cash flows divided by one half of the project's cost when the cash flows are an annuity.
• C)Must exceed the required rate of return in order for the firm to accept the investment.
• D)Is similar to the yield to maturity bond.
• E)Answers c and d are both correct.

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Definitions:

Price Ratio

Price Ratio is a comparative metric that divides the price of one good, asset, or commodity by another, often used to assess relative value or performance.

Diamond/Water Paradox

A paradox stating that (1) the things with the greatest value in use frequently have little or no value in exchange and (2) the things with the greatest value in exchange frequently have little or no value in use.

Value in Use

The utility of a product based on its ability to fulfill the needs of the user.

Value in Exchange

The worth of a good or service in comparison to other goods or services in the context of trade or commerce.