Identify the reason for which the cash pay back method understates the attractiveness of a project with a large residual value.

Question

Which of the following statements is true about the internal rate of return? a. It is the interest rate that sets a project's net present value at zero. b. It is the minimal acceptable interest rate on an investment. c. It is the difference between the present value of the cash inflows and outflows associated with a project. d. It is the difference between the present value of a cash outflow and the depreciation associated with an asset.

Answer 1

Question

Chapter 12, Problem 5DQ

To determine

Identify the reason for which the cash pay back method understates the attractiveness of a project with a large residual value.

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