The Internal Rate of Return Rule Is to Accept the Investment

question 13

True/False

The internal rate of return rule is to accept the investment project if the opportunity cost of capital is less than the internal rate of return. If the cost of capital is equal to the IRR, the project has zero NPV. On the other hand if the cost of capital is greater than the IRR, the project has a negative NPV. The IRR will give the same answer as the NPV. The IRR is defined as the discount rate that will make the NPV of the project equal zero.

Learn about the Degree of Financial Leverage (DFL) and its significance.

Comprehend the relationship between EBIT, ROE, EPS, and financial efficiency.

Recognize the importance of the optimal capital structure and its impact on stock price.

Realize the difference between a firm's target and optimal capital structure.

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Definitions:

Within Specification

The state of an item or system operating or existing within the set limits defined by the manufacturer or industry standards.

Clutch Control

The mechanism or system that engages or disengages the engine from the drivetrain in a manual transmission vehicle.

Caterpillar CX

A series of industrial power transmission components, such as heavy-duty automatic transmissions, made by Caterpillar Inc. for various applications.