Identify at Least Three Reasons for Managers to Favor the Internal

question 56

Essay

Identify at least three reasons for managers to favor the internal rate of return (IRR) over other capital budgeting approaches.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a company can increase its profits by increasing sales.

Profits

The financial gains that remain after subtracting all expenses from revenue, indicating the financial success of a business.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its sales volume, indicating the degree to which fixed costs are used in production.

Profits

The financial gain obtained when revenues generated from business activities exceed the expenses, costs, and taxes needed to sustain them.