The Statement Concerning the Internal Rate of Return Method of Capital

question 41

Multiple Choice

The statement concerning the internal rate of return method of capital budgeting that is true is:

• A)The interest rate that will discount future cash flows so that their present value is exactly equal to the cost of the investment is the cost of capital
• B)When the internal rate of return method is employed a direct relationship will exist between the interest rate chosen and the present value of future cash flows.
• C)When the net present value is equal to zero,the cost of capital discount rate)and the internal rate of return are equal.
• D)The internal rate of return is the discount rate that will produce a positive net present value for the investment

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Definitions:

Liability

A financial obligation or debt owed by an individual or company.

Accrual

The accounting method that records revenues and expenses when they are incurred, regardless of when cash transactions occur.

Onerous Contracts

Contracts in which the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received under it.

Accruals

Accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash transactions occur, reflecting the economic activity more accurately.