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Eduncle posted an MCQ
October 18, 2019 • 16:51 pm 0 points
  • UGC NET
  • Economics

The IRR is the discount rate that equates the project NPV to and benefit-cost ratio to

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    Eduncle Best Answer

    The internal rate of return (IRR) of a project is the discount rate that would yield a net present value (NPV) of zero, i.e., the rate of interest which makes the present value of the estimated cash inflow equal to the present value of the cash outflow required by the investment.
    Profitability Index (PI) is a capital budgeting technique to evaluate the investment projects for their viability or profitability. Discounted cash flow technique is used in arriving at the profitability index. It is also known as a benefit-cost ratio. Calculation of profitability index is possible with a simple formula with inputs as – discount rate, cash inflows, and outflows. PI greater than or equal to 1 is interpreted as a good and acceptable criterion.
    Hence, the correct answer is NPV should be 0 and benefit-cost ratio 1.

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