The Internal Rate of Return

question 71

Multiple Choice

The internal rate of return

• A)is more reliable as a decision making tool than net present value when considering mutually exclusive projects.
• B)is the discount rate that makes the net present value of a project equal to one.
• C)is easier to apply than net present value when cash flows are unconventional.
• D)will provide the same accept/reject decision as NPV when cash flows are conventional and projects are independent.
• E)is influenced by daily changes in the market rate of interest.

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Definitions:

Binomial Experiment

A statistical experiment that has exactly two possible outcomes for each trial and a fixed number of trials.

Probability

A measure of the likelihood of a certain event or outcome occurring, expressed as a number between 0 and 1.

Probability Distribution

A mathematical function that describes the likelihood of obtaining the possible values that a random variable can assume.

Daily Demand

The total quantity of a product or service required by the market within one day.