There Are Two Basic Steps in Calculating the Internal Rate

question 87

Multiple Choice

There are two basic steps in calculating the internal rate of return.Which of the following represents those two steps?

• A) (1) Compute the PV factor for the project and (2) compare it to the hurdle rate.
• B) (1) Compute the PV factor for the project and (2) identify the discount rate.
• C) (1) Identify the discount rate and (2) compare the IRR to the hurdle rate.
• D) (1) Compare IRR to the hurdle rate and (2) accept or reject the project.
• E) (1) Select the hurdle rate and (2) compute the PV factor for the project.

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Definitions:

Tax Liability

The amount of taxation that a business or individual owes to a taxing authority, typically calculated based on income or transactions.

Salvage Value

The estimated residual value of an asset at the end of its useful life, used in accounting for depreciation calculations.

Estimating Cash Flows

The process of forecasting the amounts of cash that will be received and spent by a business in a future period.

Replacement Projects

Investments undertaken to replace old or damaged assets in order to maintain operational efficiency.