Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

The discount rate that yields a net present value of zero is the:

Weighted Average Cost of Capital (WACC)

Internal Rate of Return (IRR)

Current Yield

Coupon Rate

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Verified step by step guidance

Understand the concept of the Internal Rate of Return (IRR): The IRR is the discount rate at which the net present value (NPV) of all cash flows (both inflows and outflows) from a project or investment equals zero.

Recall the formula for NPV: \( \text{NPV} = \sum_{t=1}^{n} \frac{C_t}{(1 + r)^t} - C_0 \), where \( C_t \) is the cash inflow at time \( t \), \( r \) is the discount rate, and \( C_0 \) is the initial investment.

To find the IRR, set \( \text{NPV} = 0 \) and solve for \( r \): \( 0 = \sum_{t=1}^{n} \frac{C_t}{(1 + r)^t} - C_0 \). This requires iterative methods or financial calculators, as the equation is not solvable algebraically.

Compare the IRR to other options: The Weighted Average Cost of Capital (WACC) is the average rate of return a company is expected to pay its investors, the Current Yield is the annual income from an investment divided by its current price, and the Coupon Rate is the annual interest rate paid on a bond's face value. None of these represent the discount rate that makes NPV zero.

Conclude that the correct answer is the Internal Rate of Return (IRR), as it is the only option that satisfies the definition of the discount rate yielding an NPV of zero.