Question
The internal rate of return is:
Multiple select question.
closely related to NPV.
a rate that summarizes the merits of a project.
the average net income divided by the average book value.
a detailed accounting of project costs.
unrelated to NPV.
Multiple select question.
closely related to NPV.
a rate that summarizes the merits of a project.
the average net income divided by the average book value.
a detailed accounting of project costs.
unrelated to NPV.
Answers
GPT-4o mini
The correct options related to the internal rate of return (IRR) are:
1. **closely related to NPV** - The IRR is the rate at which the net present value (NPV) of cash flows from a project equals zero. Thus, they are closely related concepts in capital budgeting.
2. **a rate that summarizes the merits of a project** - The IRR provides a single percentage rate that helps in evaluating the attractiveness of a project or investment, summarizing its potential profitability.
The other options are not correct interpretations of IRR:
- **the average net income divided by the average book value** - This describes the return on investment (ROI) rather than IRR.
- **a detailed accounting of project costs** - This refers more to budgeting or cost analysis, not specifically to IRR.
- **unrelated to NPV** - This is incorrect, as noted in the first point; IRR is closely related to NPV.
1. **closely related to NPV** - The IRR is the rate at which the net present value (NPV) of cash flows from a project equals zero. Thus, they are closely related concepts in capital budgeting.
2. **a rate that summarizes the merits of a project** - The IRR provides a single percentage rate that helps in evaluating the attractiveness of a project or investment, summarizing its potential profitability.
The other options are not correct interpretations of IRR:
- **the average net income divided by the average book value** - This describes the return on investment (ROI) rather than IRR.
- **a detailed accounting of project costs** - This refers more to budgeting or cost analysis, not specifically to IRR.
- **unrelated to NPV** - This is incorrect, as noted in the first point; IRR is closely related to NPV.