Question
Your boss asks you to interpret the internal rate of return on a proposed purchase of a home improvement store in Salt Lake City. You
Your boss asks you to interpret the internal rate of return on a proposed purchase of a home improvement store in Salt Lake City. You tell her that it represents the: Maximum rate of return a firm expects to earn on a project. Rate of return a project will generate if the project in financed solely with internal funds. Discount rate that causes the profitability index for a project to equal zero. Discount rate that equates the net cash inflows of a project to zero. Discount rate which causes the net present value of a project to equal zero.
Mike uses the payback method to evaluate investments in NWC. Which two characteristics likely explain why he has chosen to use the payback method? |
Ignores time value of money, ease of use.
Ease of use, arbitrary cutoff point. |
Considers time value of money, liquidity bias. |
Liquidity bias, ease of use.
Liquidity bias, arbitrary cutoff point.
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