COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The rate of return on the investment calculated based on cash inflows and outflows.
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The rate of return on the investment calculated based on investment capital and profit generate.
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The minimum rate of return required for the business to be profitable.
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The maximum rate of return that business could generate.
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Detailed explanation-1: -The internal rate of return is the rate at which the net present value of a project is equal to zero. For a project to be accepted, IRR should be more than its cost of capital. If the cash flow stream has one or more cash outflows interspersed with cash inflows, there can be multiple IRRs.
Detailed explanation-2: -Which one of the following is true of the internal rate of return (IRR) approach to assessing investments? IRR fails to take all relevant future cash flows into account.
Detailed explanation-3: -Answer: b ) As long as you are not dealing with mutually exclusive projects, capital rationing, or unusual projects having multiple sign changes in the cash-flow stream, the internal rate of return method can be used with reasonable confidence .
Detailed explanation-4: -What Is the Internal Rate of Return (IRR) Rule? The internal rate of return (IRR) rule states that a project or investment should be pursued if its IRR is greater than the minimum required rate of return, also known as the hurdle rate.