Question : The internal rate of return:
Option 1: must be less than the investment rate if the firm is to invest.
Option 2: make the present value of profit equal to the present value of costs.
Option 3: falls as the annual yield of an investment rises.
Option 4: is equal to the market interest rate for all the firm's investments.
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Correct Answer: falls as the annual yield of an investment rises.
Solution : The correct option is to fall as the annual yield of an investment rises .
A metric used in financial analysis to gauge the profitability of possible investments is the Internal Rate of Return or IRR. In a discounted cash flow analysis, the Internal Rate of Return (IRR) is the discount rate that sets the net present value (NPV) of all cash flows to zero.
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