Question

Choose all the correct answers that apply to IRR (a) PWDR which causes the NPV to...

Choose all the correct answers that apply to IRR

(a) PWDR which causes the NPV to be equal to zero

(b) Projects can have only one IRR

(c) an IRR>PWDR indicates a possible investment

(d) an IRR<PWDR indicates a possible investment

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Answer #1

IRR is Internal Rate of Return. It is that value of the discount rate at which NPV is equal to zero i.e. at IRR Present Value of cash inflows is equal to the Present Value of cash outflows. If a project has positive cashflows and then negative cashflows and then again positive cashflows then IRR can have more than one values. A project is selected if its IRR is greater than the cost of capital and is rejected if its IRR is less than the cost of capital. So out of the given statements, the ones that apply to IRR are:

(a) PWDR which causes the NPV to be equal to zero.

(c) an IRR>PWDR indicates a possible investment.

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