Question

The i thermal rate of return is:

The discount rate that makes the net present value of a project equal to the initial cash outlay.

Equivalent to the discount rate that makes the net present value equal to one.

Tedious to compute without the use of either a Financial calculator or a computer.

Highly dependent upon the current interest rates offered in the marketplace.

A better methodology than net present value when dealing with unconventional cash flows.

Answer 1

Answer

Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments. Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. In other words Internal Rate of Return is a discount rate that makes the net present value of a project equal to the initial cash outlay.

In Simple words, IRR is that minimum desired Rate of Return required by an Investor whereby he achieves a Break-Even situation {ie. Present Value of Infows = Present Value of Outflow}

Hence (a) is correct.