What is the projected annual yield of a project investment, incorporating both initial and ongoing costs into the estimated percentage growth rate that the project will have?

The correct answer is C. Internal rate of return. The Internal Rate of Return (IRR) (C) is the discount rate at which the net present value of all cash flows (both initial investment and ongoing costs/revenues) equals zero. It is expressed as a percentage growth rate and accounts for the time value of all cash flows over the…

Predictive Plan-Based Methodologies

Question

What is the projected annual yield of a project investment, incorporating both initial and ongoing costs into the estimated percentage growth rate that the project will have?

Options

AAnnual rate of return
BNet present value
CInternal rate of return
DReturn on investment

How the community answered

(42 responses)

A
5% (2)
B
2% (1)
C
90% (38)
D
2% (1)

Explanation

The Internal Rate of Return (IRR) (C) is the discount rate at which the net present value of all cash flows (both initial investment and ongoing costs/revenues) equals zero. It is expressed as a percentage growth rate and accounts for the time value of all cash flows over the project's life - matching the description exactly. Net Present Value (B) is expressed as a dollar amount, not a percentage. Return on Investment (D) is a simple ratio of profit to cost, not an annualized rate accounting for ongoing costs over time. Annual Rate of Return (A) is a simpler measure that does not incorporate ongoing costs as comprehensively as IRR.

Topics

#Internal Rate of Return#Financial Analysis#Project Selection#Investment Appraisal

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