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The net present value method of investment appraisal:

a) Compares the present value of cash flows with a hurdle rate

b) Uses discounted cash inflows and outflows to evaluate capital investment projects

c) Calculates the internal rate of return of a project and compares it with a hurdle rate

d) None of the above

​Please elaborate on the correct answer

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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The internal rate of return is defined as the:

A. maximum rate of return a firm expects to earn on a project.

B. discount rate which equates the net present value of cash inflows to the net present value of cash outflows to zero.

C. discount rate that causes the profitability index for a project to equal zero.

D. rate of return a project will generate if the project is financed solely with internal funds.

A) How can NPV be used in personal life? Elaborate and explain.

B.) If you think of the term theoretically you have to come to realize that it is implied or existing only in theory and it is not practical, and speculative which is the terms used by dictionary.com. Because net present value is the theoretically correct method it is not practical for most practitioners. Net present value of cash inflows equals the initial investment and IRR is the amount of return if the firm continues to invest and receives the the given cash inflows. Net present value is just that, the net present value when you calculate NPV and then depress the IRR you get the actual internal rate of return. Net Present Value, which is figured out by taking the value of the cash inflows and take out the initial investment. The IRR equates the NPV equal to zero so that the inflows and outflows are being measured to the actual flow of money. I believe that because IRR is the practical view in which businesses “think in terms of rates of return rather than actual dollar returns. It takes into account the benefits of the investment where NPV does not” (Gitman, Zutter, 2015), and that is why the differences exist.

What are your thoughts? elaborate/explain.

The internal rate of return is defined as the:

A. maximum rate of return a firm expects to earn on a project.

B. discount rate which equates the net present value of cash inflows to the net present value of cash outflows to zero.

C. discount rate that causes the profitability index for a project to equal zero.

D. rate of return a project will generate if the project in financed solely with internal funds.

Which of the following are advantages of the payback method of project analysis? I. easy to use and understand II. considers the time value of money III. effectively handles investment risk IV. Uses income data rather than cash flow data

A. II, III, and IV only

B. I and III only

C. I and II only

D. II and III only

Which of the following is not a possible reason for conducting a post-audit review?

A. The post-audit review reduces the overall quality of future investment proposals.

B. The post-audit review helps identify those who consistently provide inaccurate estimates of cash flows.

C. The post-audit review allows the managers to stop unsuccessful projects, preventing excessive losses.

D. Managers who propose projects will be more careful before recommending a project.

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