The Internal Rate of Return of a Capital Investment

question 59

Multiple Choice

The internal rate of return of a capital investment

• A) Changes when the required rate of return changes.
• B) Is equal to the annual net cash flows divided by one half of the project's cost when the cash flows are an annuity.
• C) Must exceed the required rate of return in order for the firm to accept the investment.
• D) Is similar to the yield to maturity on a bond.
• E) Answers c and d are both correct.

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Definitions:

Statement of Changes

A financial statement that shows how the equity of a company has changed over a certain period due to various reasons like profits, losses, or distributions.

Deferred Tax Liability

A tax obligation due in the future for income that has been recognized in the financial statements before it is taxable by tax authorities.

Tax Depreciation

The depreciation expense deducted for tax purposes, allowing taxpayers to recover the cost of a property or asset used in a trade or business for income-producing purposes.

Accounting Depreciation

Represents the systematic allocation of the depreciable amount of an asset over its useful life, reflecting the wear and tear, obsolescence, or other declines in value as an expense in the income statement.