Which of the Following Best Describes the Internal Rate of Return

question 21

Multiple Choice

Which of the following best describes the internal rate of return?

• A) The discount rate that makes the cost of the investment equal to the present value of the cash flows
• B) The discount rate that is used to borrow funds from a lender
• C) The ratio of average annual income to average amount invested
• D) The rate at which an investment pays back

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Definitions:

External Diseconomies

Negative effects experienced by third parties or the general public due to the activities of a business or industry, not reflected in market costs.

Decreasing-Cost Industry

An industry where the cost per unit of output decreases as the scale of production increases is known as a decreasing-cost industry.

Long-Run Equilibrium

A state in which all factors of production and costs are variable, allowing for the adjustment of all inputs, leading to optimal allocation of resources in the market.

Increasing Cost Industry

An industry in which production costs increase as output expands, typically due to factors such as input limitations and increased demand for inputs.