Question : As the number of investments made by the firm increases, its internal rate of return
Option 1: declines due to diminishing marginal productivity
Option 2: decline because the market rate of interest will fall, ceteris paribus
Option 3: increase to compensate the firm for the current consumption foregone
Option 4: increase because the level of savings will fall
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Correct Answer: increase to compensate the firm for the current consumption foregone
Solution : The correct option is to increase to compensate the firm for the current consumption foregone .
Internal rate of return (IRR) is a metric used to estimate the return on an investment. The IRR is expressed as a percentage and represents the rate of return that an investment is expected to generate over its lifetime. Internal rates of return are frequently used to gauge a project's or investment's viability. An investment in a project is more appealing the greater its internal rate of return.
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