The internal rate of return (IRR) is The same thing as the cost of capital. The discount rate that equates the present values of cash inflows and cash outflows. The same thing as the net present value. The same thing as the profitability index.

The internal rate of return (IRR) is The same thing as the cost of capital. The discount rate that equates the present values of cash inflows and cash outflows. The same thing as the net present value. The same thing as the profitability index.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 13MC: Which of the following discounts future cash flows to their present value at the expected rate of...

See similar textbooks

Related questions

Q: What is Internal Rate of Return - Variable Cash Flows with Reversion? Please provide examples.

A: The internal rate of return is the one of the discounted techniques of capital budgeting which is…

Q: How is payback calculated with equal net cash inflows?

A: A payback period is the amount of time needed to earn back the cost of an investment. The length of…

Q: When calculating the present worth of a uniform series using the relationship P = A(P|A, i%,n), the…

A: P equals to A times the factor of P over A and this factor known as the Uniform Series of Present…

Q: A conservative approach to reinvesting projected cash flows (the reinvestment assumption) would use…

A: “Hey, since there are multiple different questions posted, we will answer first question. If you…

Q: the discount rate that equates the present value of the cash inflows with the present value of the…

A: In capital budgeting decisions calculate net present value is very important.

Q: If you disounted a set of positive real cash flows with a nominal discount rate and inflation were…

A: Justification:Suppose the positive cash flows are discounted with the inflation rate, which is…

Q: What is the present value of the combined cash flows?

A: Present Value: It represents the present value of the future cash flow stream. It is computed by…

Q: Find the Present Value of the Cash Flow 1 and, using this and the previous information, calculate…

A: The value of money changes over time. For example, the value of $1000 today will not be the same as…

Q: Finding the present value of future cash flows is called O A. analytics, tracking and finding the…

A: Capital Budgeting: It is a process a company undertakes for the evaluation of potential investments…

Q: Where is the short term investment shown in the Cash flow statement?

A: A short-term investment: It also known as a temporary investment or marketable security. It is a…

Q: Explain the difference between: a) Cash Flows versus Accounting Estimates b) Static Payback Period…

A: When a company prepares financial statements or budgets it has to estimate various amounts. The…

Q: What is the impact of working capital on the cash flow statement?

A: Statement of cash flows: This statement reports all the cash transactions which are responsible for…

Q: A financial analyst is treating a cash flow stream as a perpetuity. The present value of the…

A: Present Value of Perpetuity: It represents the present worth of the perpetual cash flow stream. It…

Q: What is FCF (Free Cash Flow) to Equity ratio?

A: The amount of cash generated by a company that is available to be transferred to shareholders is…

Q: Describe the concept of present-worth analysis based on cash flow equivalence?

A: It is the equivalence analysis method under which cash flows of projects are being discounted to a…

Q: Describe the annual cash flow analysis, which presents measures of investment worth based on yield?

A: The question is based on the concept of cash flow and its analysis in terms of discounted value of…

Q: Which of the following methods consider the time value of money? A. payback and accounting rate of…

A: Time Value of Money The time value of money is the concept that money you have now is worth more…

Q: If current liabilities increase, what is the effect on cash? What about a decrease in current…

A: Liabilities: The claims creditors have over assets or resources of a company are referred to as…

Q: Define DCF (discounted cash flow) analysis

A: Discounting cashflow

Q: Explain how to use the free cash flow valuation model to find the price per share of common equity

A: Free cash flow to the firm is the cash flow available to the company’s suppliers of capital after…

Q: Define the term the cumulative cash flow?

A: Cash flows are the cash generated from the operation of the business organisation. In other words,…

Q: In this method, the company compares the amount spent on the investment with the discounted expected…

A: a. Payback is the period in which the investment can break-even. b. NRV is the difference of…

Q: How are incremental cash flows found in a replacement analysis?

A: The choice to substitute an existing asset with another is defined as the net current and internal…

Q: 1. _______________ is the process of determining the future value (FV) of a cash flow or a…

A: Future value is the value that is calculated by compounding the present value at a given rate of…

Q: Is the cash conversion cycle useful and important in financial analysis? Explain

A: The working capital is a short term fund, which is used to meet day to day operational costs of a…

Q: yback method, the Accounting Rate of Return, and Discounted Cash Flow Model (Ne

A: Step 1 A huge budget is a method through which a company assesses possible substantial projects or…

Q: Define the positive cash flows?

A: The positive cash flow is the state of the organization wherein money inflows to an enterprise over…

Q: How can we compute incremental cash flow, and IRR?

A: Incremental cash flows and IRR, both are the terms of Capital Budgeting decisions. Incremental cash…

Q: What is incremental cash flow?

A: Cash flow is the movement of cash in the company. While making an investment in any project, cash…

Q: Consider the calculation of an external rate of return (ERR). The positive cash flows in the cash…

A: External rate of return is the return rate which is expected to be generated from the project. If…

Q: How to do Cash Flow Projection when investing? give a example.

A: Cash flow cash flow (CFI) is one of the components of a cash flow statement that reports the amount…

Q: The rate of return that equates the present value of cash inflows and outflows is the: A. hurdle…

A: Introduction: Capital budgeting is an investment criterion or decision making mechanism for…

Q: Explain how to estimate the price per share using the free cashflow valuation model.

A: Free cash flow valuation model is the one in which company’s cash flows that are expected to occur…

Q: If cashflows are discounted at____ the net present value is zero a. Internal rate of return…

A: Capital Budgeting entails long-term planning and monitoring of capital expenditures, as well as a…

Q: Which is higher, net earnings or operating cash flows? Which line item is the biggestreason for this…

A: Operating activities: Operating activities refer to the normal activities of a company to carry out…

Q: Operating Cash Flow (OCF) is equal to what?

A: Operating cash flow (OCF) is the cash flow derived from the operating activities. It excludes the…

Q: Why are the net present value and internal rate of return considered discounted cash flow methods?

A: Net present value is the comparison between the net cash inflows received from a future investment…

Q: A centerpiece of any study of finance is "valuation." A simple function, "V=l/R," can be used to…

A: Valuation is the process of determining the present intrinsic value of an asset or a security.…

Q: Discuss why the present value of cash flows and the relative valuation ratios valuation approaches…

A: Valuation of entity is done in two methods as: Discounting expected inflows from entity in upcoming…

Q: Which of the following can be used when forecasting cash flows? Select one: a. All of given choices.…

A: Cash flow refers to inflow or outflow of cash from the business during an accounting year.…

Q: Which is more important from a finance perspective - net income or operating cash flow? Why? What is…

Q: What is meant by an incremental cash flow? What do you need to ask yourself when deciding whether a…

A: When a firm takes on a new project, there is new cash flow associated with this new project. The…

Q: Illustrate the process of computing the equivalent present worth when all cash flows are given in…

A: The process to compute the equivalent present worth are: Identify the interest rate Identify the…

Q: The discount rate to be used for calculating the present value of a stream of cash flow should be…

A: Discount rate is defined as rate of the return, which helps in the computation of the future's DCF…

Q: How is payback calculated with unequal net cash inflows?

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

The internal rate of return (IRR) is

The same thing as the cost of capital.

The discount rate that equates the present values of cash inflows and cash outflows.

The same thing as the net present value.

The same thing as the profitability index.

Definition Definition

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value method
Which of the following methods consider the time value of money? A. payback and accounting rate of return B. payback and internal rate of return C. internal rate of return and accounting rate of return D. internal rate of return and net present value
What are: the payback method, the Accounting Rate of Return, and Discounted Cash Flow Model (Net Present Value and Internal Rate of Return)
The present value of an investment's future cash flows divided by its initial cost is the: O Net present value. O Internal rate of return. O Average accounting return. O Profitability index. O Payback period.
Which method does not consider the time value of money? Choose the correct. A. Net present value B. Internal Rate of Return C. Average rate of return D. Profitability Index
Which one of the following methods is based on net profit rather than cash flows? a. net present value b. payback c. internal rate of return d. accounting rate of return e. profitability index
Which of the following is the correct definition for present value (PV)? Select one: a. The current value of the sum of all the past cash flows given a specified rate of return. b. The current value of the sum of all the future profits made by the company with a specified rate of return. c. The current value of a future sum of money or stream of cash flows given a specified rate of return. d. The future value of the sum of all the future cash flows without a specified rate of return.
The present value of a future cash flow is computed by multiplying the future cash flow value with the: O discounting factor. O number of periods. O compounding factor. O interest rate.
Which one of the following is most closely related to the net present value profile? A: Payback B: Discounted payback C: Profitability index D: Average accounting return E: Internal rate of return
The net present value of an investment represents the difference between the: present value of cash inflows and present value of cash outflows. cost and its net profit. cash flows and future value of profits. cost and net income.
What is Internal Rate of Return - Variable Cash Flows with Reversion? Please provide examples.
When calculating an i* value, all net positive cash flows are assumed to be reinvested at:a. the current market interest rate.b. the i* rate.c. the company’s MARR.d. the company’s cost of capital.