Which One of the Following Defines the Internal Rate of Return

question 44

Multiple Choice

Which one of the following defines the internal rate of return for a project?

• A)a discount rate that creates a zero cash flow from assets
• B)a discount rate which results in a zero net present value for the project
• C)a discount rate which results in a net present value equal to the project's initial cost
• D)a rate of return required by the project's investors
• E)the project's current market rate of return

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Definitions:

Annual Return

The annual return is the percentage change in an investment's value over a year, accounting for dividends, interest, and capital gains.

Present Value Factors

Multipliers used to determine the present value of a future sum of money or stream of cash flows given a specific discount rate.

Hurdle Rate

The minimum return rate on an investment required by an investor or manager, often used in capital budgeting.

Internal Rate

Short for Internal Rate of Return (IRR), a metric used in capital budgeting to estimate the profitability of potential investments.