PRC-2 · Chapter 6 · Question 16 of 45
Which of the following capital appraisal methods explicitly determines the exact discount rate at which a project's Net Present Value strictly equals zero?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Internal Rate of Return (IRR)
Explanation
The Internal Rate of Return (IRR) is mathematically defined as the specific break-even discount rate that forces the present value of cash inflows to perfectly equal the initial investment, yielding an NPV of zero.
More Discounted Cash Flows MCQs
- Q18A firm invests Rs. 500 today. The project generates net cash inflows of Rs. 200 in Year 1, Rs. 200 in Year 2, and Rs. 300 in Year 3. What…
- Q19In the standard Net Present Value formula, what represents the mathematical factor used to convert future cash flows into today's monetary…
- Q20A business evaluates a project with an initial cost of Rs. 10,000. It generates Rs. 6,000 in Year 1 and Rs. 6,000 in Year 2. If the firm's…
- Q21When applying the Internal Rate of Return (IRR) appraisal technique, a proposed business project is universally considered acceptable if:
- Q22Which of the following represents a major theoretical flaw of the basic Payback Period methodology?