The Internal Rate of Return for an Investment

question 47

Multiple Choice

The internal rate of return for an investment:

• A)Frequently results in positive net present value on attractive projects.
• B)Generally coincides with the company's discount rate.
• C)Disregards discounted cash flows.
• D)On mutually exclusive projects may produce different project rankings than the net present value (NPV)method.
• E)Would tend to be reduced if a company used an accelerated method of depreciation for tax purposes rather than the straight-line (SL)method.

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Definitions:

Pre-emptive Rights

The rights granted to shareholders to purchase additional shares in a company before the shares are offered to the public, to maintain their proportionate ownership.

Due Diligence

The thorough investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party.

Legal Entity

An organization or entity that is legally recognized as having rights and responsibilities separate from its members or owners, such as corporations, trusts, and partnerships.

Directors Responsibility

The legal obligations that board directors have to manage a company's affairs diligently, in good faith, and in the best interests of the company and its shareholders.