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 internal rate of return (IRR) concept is best explained by which of the following?

The required rate of return set by the board of directors.

The discount rate that makes the net present value (NPV) of an investment equal to zero.

The rate at which a company can borrow funds from a bank.

The average annual return expected from an investment over its life.

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Verified step by step guidance

Understand the concept of Internal Rate of Return (IRR): IRR is the discount rate at which the Net Present Value (NPV) of all cash flows from a project or investment equals zero. It is a critical metric used in capital budgeting to evaluate the profitability of potential investments.

Clarify the relationship between IRR and NPV: The IRR is the rate at which the present value of future cash inflows equals the initial investment outflow, resulting in an NPV of zero. This means IRR is the break-even rate of return for the investment.

Compare the given options: Evaluate each option to determine which one aligns with the definition of IRR. For example, the required rate of return set by the board of directors is unrelated to IRR, as IRR is calculated based on cash flows, not a predetermined rate. Similarly, the rate at which a company borrows funds or the average annual return expected from an investment does not define IRR.

Identify the correct answer: The correct explanation of IRR is 'The discount rate that makes the net present value (NPV) of an investment equal to zero,' as this directly corresponds to the definition of IRR.

Conclude the analysis: IRR is a useful tool for comparing the profitability of different investments. If the IRR exceeds the required rate of return or cost of capital, the investment is considered favorable.