Question

The discount rate that equates the present value of a project’s cash inflows with the present value of the project’s outflows is:

Cost of capital

Time adjusted accounting rate of return

Internal rate of return

Present value index

Answer 1

The discount rate that equates the present value of a project’s cash inflows with the present value of the project’s outflows is Internal rate of return ( IRR ) .
The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.

Formula for IRR = Ra+ (NPVa/ NPVa-NPVb) ( Rb-Ra )
Where Ra is the Lower Discount rate chosen , Rb is the Highest Discount rate chosen , NPV a = NPV at Ra , NPV b= NPV at Rb.