The internal rate of return (IRR) is the discount rate that results in a net present value(NPV) of zero.TrueFalse Acme Industries is considering a project that will cost $200,000 and generate returnsof $45,000 at the end of year 1, $85,000 at the end of year 2, $65,000 at the end ofyear 3 and $30,000 at the end of year 4.Calculate the NPV of the project using a cost of capital of j1=6.5%. Round youranswer to the nearest dollar.Your Answer:Answer

According to rule, because you have posted multiple questions, we will answer the First question…

Answered: The internal rate of return (IRR) is…

Business

Finance

The internal rate of return (IRR) is the discount rate that results in a net present value (NPV) of zero. O True False

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17Q: What is the difference between the discount rate used for net present value and the internal rate of...

See similar textbooks

Related questions

Q: If cashflows are discounted @ the net present value is zero. O a. RATE OF BORROWING…

A: Capital budgeting is the process by which a corporation examines potential large projects or…

Q: 1._____________ is the rate at which the net present value becomes zero. a. None of the options b.…

A: EXPLANATION:- Internal rate of return (IRR) is a way of measuring the value of return on the…

Q: Required: a. Determine the discounted rate of return.

A: Formula: Discount rate= Lower Rate +Lower NPV×Higher Rate-Lower RateLower NPV-Higher NPV

Q: c. The internal rate of return is between what two whole discount rates (e.g.. between 10% and 11%,…

A: The project can be evaluated based on discounted cash flow methods. The IRR method is used to…

Q: of the Disadvantages of the method Discounted payback period is Ignores the time value of money…

A: Step 1 The discounted payback period (DPB) is the time it takes for a project's original cost to…

Q: the discount rate that equates the present value of the cash inflows with the present value of the…

A: In capital budgeting decisions calculate net present value is very important.

Q: Which of the following statements is/are false, all else the same? 1. Present values increase as the…

A: Present value means the value of the future cash flow as of today. And this is done by using the…

Q: How is discounting used in the context of present values and future values? O To reduce a present…

A: Present amount and future amount are two terms which are widely used in time-factor of money where…

Q: Match each term with the best definition or descriptor. NPV is __________ ( a unitless ratio, a…

A: Solution:- Net Present Value (NPV) means the net present value of cash inflows after the deduction…

Q: 29.The calculations of a discount rate can be based on all the following approaches among others…

Q: Write the discounting formula for the Conversion from Actual to Constant Dollars?

A: Introduction Inflation is a major reason for conversion of actual value to Constant Dollar value.…

Q: Give at least two reasons for choosing the net present value method and at least two reasons each…

A: Below are the reasons for choosing the net present value method: Time value of money: The net…

Q: The discount rate is the combination of what two types of discounting? a. exponential and linear…

A: Discount rates are used for discounting the future cash flows. It helps in determining the time…

Q: which of the following is true? a lower payment amount results in a higher FV, other things equal.…

A: Future value is the value of the money invested today at some future date on the basis of the…

Q: A forward interst rate thar is equal to 0% implies that there is no arbitrage opportunity True or…

A: Arbitrage is defined as the technique of buying and selling the same item in multiple marketplaces…

Q: What is limitation of Payback period, Net Present Value (NPV) and Internal rate of return (IRR).…

A: i) Payback period: Payback period is the expected time period which is required to recover the cost…

Q: True or false When the net present value is negative, the present value index will be greater than…

A: Net present value: It is the technique used for analyzing investment in long term capital projects.…

Q: As the discount rate increases A. present value factors decrease B. Present value factors remain…

A: Solution: As the discount rate increases "present value factors decrease".

Q: Which of the following is true according to the pure expectations theory? Forward rates:a.…

A: The theory of forward interest rate would be equivalent to the anticipation of savers on future…

Q: The internal rate of return is: discount rate that makes the profitability index (PI) greater than…

A: IRR and PI are important tools of capital budgeting along with NPV. IRR refers to the internal rate…

Q: The break-even value calculation is similar to the calculation we use for theinternal rate of…

A: The internal rate of return (IRR) is a capital budgeting metric used to gauge the benefit of…

Q: The difference between the expected return and the actual return is referred to as the unexpected…

A: The excess amount over invested value that an investor estimates to realize over horizon of…

Q: Which of the following is not a variable in the basic present value equation? Multiple Choice…

A: Investors are holding securities for the purpose of gaining the returns. The return is calculated…

Q: The modified internal rate of return (MMIR) is the discount rate that forces the _____.

A: Explanation: Modified internal rate of return can be better understood from the below formula, where…

Q: For one lump sum FV, the PV of your future liquidity decreases a. as t increases. b. as t decreases.…

A: The PV refers to the present value or today's value of future cash flows. It is computed by…

Q: When npv is negative, the discount rate is greater than the actual return on investment. A.…

A: Net present value is the method used in capital budgeting to analyse various investments, projects,…

Q: a. Pay-back period b. Discounted Pay-back period c. Internal Rate of Return (IRR)

A: Payback period is the period within which the sum invested by the company in a project will be…

Q: risk-adjusted discount rate has

A: In financial terms, risk can be defined as the possibility that the real profits from an outcome or…

Q: What happens to a future value is you increased the rate, r? What happens to a present value?

A: When the interest rate increases, the future value of a sum now will increase. This is because the…

Q: If the calculated NPV is negative, then which of the following must be true? O No answer text…

Q: Use a numerical example to illustrate that when there is a large change in the interest rate, the…

A: Duration of bond price is to measure the interest rate risk and also the convexity is utilized to…

Q: Calculate the Payback period, Accounting Rate of Return and the Net Present Value (using a 17%…

A: Given:

Q: The present value of a future sum increases as the term (N) increases, regardless of compounding…

A: Formulas: Present value = Future value / (1+rate)^years

Q: In a margin account, the interests should be higher than the returns. TRUE OR FALSE?

A: In a margin account, the investor borrows from the broker. So, it is not necessary that the interest…

Q: True or false explain a. For , when the spot price is the strike price, then the profit/loss…

A: We have to check the accuracy of both the statements, we can see that spot and strike are same so…

Q: When calculating present value, the the interest rate, the smaller the present value amount. smaller…

A: Present value- In finance and accounting, the notion of present value is extremely important. The…

Q: What is the opposite of a vacancy rate? A O Internal rate of return. BO Occupancy rate. CO…

A: The vacancy rate is a percentage measure for all the available rental places that are vacant. The…

Q: The discounted payback method considers the time value of money as well as the cash flows after the…

A: Introduction: This question is related to the concept of capital budgeting. It is nothing but an…

Q: The minimum acceptable rate of return for an investment decision is called the;

A: A project to become acceptable shall be as such the costs shall be recovered completely.

Q: When performing present worth analysis, a future worth taking inflation into consideration tends to…

A: Present worth is computed by discounting the future cash flows from the security or the project.

Q: The unadjusted rate of return on the Initial tnvestment would be approximately.

A: Calculation of average income: Year Net income 1 30000 2 45000 3 50000 4 55000…

Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

The internal rate of return (IRR) is the discount rate that results in a net present value
(NPV) of zero.
True
False

Acme Industries is considering a project that will cost $200,000 and generate returns
of $45,000 at the end of year 1, $85,000 at the end of year 2, $65,000 at the end of
year 3 and $30,000 at the end of year 4.
Calculate the NPV of the project using a cost of capital of j1=6.5%. Round your
answer to the nearest dollar.
Your Answer:
Answer

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.