Which of the Following Is the Rate of Return,based on Discounted

question 71

Multiple Choice

Which of the following is the rate of return,based on discounted cash flows,a company can expect to earn by investing in a capital asset?

• A) accounting rate of return
• B) bank interest rate
• C) internal rate of return
• D) return on investment

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Definitions:

Required Return

The minimum rate of return needed on an investment, determined by the investor’s risk tolerance and the investment’s risk.

NPV

Net Present Value; a calculation used to determine the present value of an investment by discounting its future cash flows.

Initial Investment

The amount of money used to start a new project, purchase an asset, or invest in the market at the initiation phase.

Payback Period

The amount of time it takes to recover the cost of an investment, calculating how long it will take to break even from the initial expenditures.