Asked by Andrew Shoffler on Jul 07, 2024
Verified
The difference between the cost of capital and the IRR for a project is the minimum amount of error that can occur without impacting the investment decision.
Cost of Capital
The obligatory profit percentage a corporation needs to achieve on its investments to keep its market share and attract investors.
IRR
Internal Rate of Return; a financial metric used to evaluate the profitability of investments, representing the discount rate that makes the net present value (NPV) of all cash flows equal to zero.
- Compute and elucidate the Internal Rate of Return (IRR), Net Present Value (NPV), and Profitability Index (PI) across various projects.
Verified Answer
TA
Timothy AsuncionJul 08, 2024
Final Answer :
False
Explanation :
The difference between the cost of capital and the IRR (Internal Rate of Return) does not represent the minimum amount of error but rather indicates the project's profitability over its cost of financing. A positive difference suggests the project is expected to generate returns above its cost, making it potentially attractive for investment.
Learning Objectives
- Compute and elucidate the Internal Rate of Return (IRR), Net Present Value (NPV), and Profitability Index (PI) across various projects.