Which of the Following Statements Concerning the Internal Rate of Return

question 4

Multiple Choice

Which of the following statements concerning the internal rate of return method of capital budgeting is correct?

• A) 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.
• B) 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.
• C) The internal rate of return is the discount rate that will produce a positive net present value for the investment.
• D) When the net present value is equal to zero, the cost of capital (discount rate) and the internal rate of return are equal.

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Definitions:

Parameter of Interest

A specific characteristic or measure in a population that a study aims to estimate or test.

Power Consumption

The amount of energy consumed by electronic devices or systems over a given period of time.

Type II Error

A statistical error that occurs when a false null hypothesis is not rejected, meaning a real effect or difference was failed to be detected.

Sample Size

The number of observations or data points collected in a sample from a population, used for statistical analysis.