Which One of the Following Is True for the Internal

question 111

Multiple Choice

Which one of the following is true for the internal rate of return (IRR) method?

• A) It assumes cash proceeds during the life of a project can be reinvested to earn the same rate of return as the weighted-average cost of capital.
• B) Depending on the pattern of after-tax cash flows, multiple IRRs for a given proposed investment are possible.
• C) IRRs of multiple projects are additive (that is, can be added together).
• D) It can be used to make optimal decisions regarding mutually exclusive investment projects.
• E) It makes it easy to incorporate multiple costs of capital.

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Definitions:

Du Pont Analysis

A framework for analyzing a company's return on equity (ROE) by breaking it down into its constituent components to assess operational efficiency.

Total Assets Turnover

A financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue.

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how effectively management is using shareholders’ funds to generate profit.

Debt Ratio

A financial metric that assesses a firm's level of indebtedness by dividing its total liabilities by its total assets.