Match the items of List – I with the items of List – II. List-IList-II (a) IRR (i) Process of analyzing…
IRR is the discount rate that makes a project's NPV zero, while a zero NPV at the required return means the project exactly meets that return and is financially acceptable.…
Choose your answer
Match the items of List – I with the items of List – II.
| List-I | List-II |
|---|---|
| (a) IRR | (i) Process of analyzing potential fixed asset investment. |
| (b) NPV is equal to zero. | (ii) (Proportion of equity) × (cost of equity) + (Proportion of debt) × (cost of debts). |
| (c) Cost of capital | (iii) Project is acceptable. |
| (d) Capital budgeting | (iv) NPV = Zero. |
Answer and explanation
Correct answer B
IRR is the discount rate that makes a project's NPV zero, while a zero NPV at the required return means the project exactly meets that return and is financially acceptable. The weighted average cost of capital combines financing costs using the proportions of equity and debt, whereas capital budgeting evaluates proposed long-term asset investments. These definitions give iv, iii, ii, i; setting NPV to zero defines the IRR only when solving for the discount rate.
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UGC NET Management