Question

State if the following statements regarding IRR are true of false

1. IRR is the periodic discount rate that equates the sum of net cashflows of a project to its cost.
2. IRR is the periodic rate of return that a project earned, given the capital invested and the cash flows generated.
3. IRR is the minimum rate of return required on a project
4. IRR is the opportunity cost of the capital invested in the project
5. IRR is only determined by the amount of capital invested in the project and the earning of the project regardless of the opportunity cost of the capital invested
6. IRR is the periodic growth rate of the capital invested in the project
7. IRRis the periodic rate of return /yield that allows the initial investment generates a stream of cash flows in the subsequent years

Answer 1

Solution :-

(i) IRR is the periodic discount rate that equates the sum of net cashflows of a project to its cost :- True

(ii) IRR is the periodic rate of return that a project earned, given the capital invested and the cash flows generated. :- True

(iii) IRR is the minimum rate of return required on a project :- False

(iv) IRR is the opportunity cost of the capital invested in the project :- False

(v) IRR is only determined by the amount of capital invested in the project and the earning of the project regardless of the opportunity cost of the capital invested :- True

(vi) IRR is the periodic growth rate of the capital invested in the project :- False

(vii) IRRis the periodic rate of return /yield that allows the initial investment generates a stream of cash flows in the subsequent years :- True

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