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CA Inter Internal Rate of Return — practice questions

Explore 52 free Internal Rate of Return questions in CA Inter Financial Management. Open each question or exercise to read its content, reference answers and available explanation.

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Internal Rate of Return questions and exercises with answers

Showing questions 1–30 of 52.

What does the internal rate of return set equal to zero?Read the answer and worked solution →Which alternative name is used for the internal rate of return?Read the answer and worked solution →In a savings or loan context, the IRR is also called the:Read the answer and worked solution →Applied ex-post, the IRR measures:Read the answer and worked solution →When is a project profitable on the IRR criterion?Read the answer and worked solution →Unlike NPV, which measures value added, the IRR indicates an investment's:Read the answer and worked solution →Project IRR differs from equity IRR because equity IRR considers returns:Read the answer and worked solution →For a liability, which IRR is preferable?Read the answer and worked solution →Yield to maturity on a bond is an application of which measure?Read the answer and worked solution →A buyback proceeds if returning capital has a higher IRR than:Read the answer and worked solution →Limited partners use IRR in private equity to judge the:Read the answer and worked solution →How is the IRR equation generally solved?Read the answer and worked solution →The Hit and Trial method for finding the IRR is also called:Read the answer and worked solution →Which spreadsheet function computes the IRR of periodic cash flows?Read the answer and worked solution →For one outflow followed by only inflows, how many IRRs exist?Read the answer and worked solution →A firm invests Rs 1,000 and receives Rs 1,150 after one year. What is the IRR?Read the answer and worked solution →Rs 10,000 today yields a single Rs 12,100 after two years. The IRR is:Read the answer and worked solution →An outlay of Rs 1,000 returns Rs 550 in year 1 and Rs 605 in year 2. IRR?Read the answer and worked solution →Rs 50,000 invested earns Rs 10,000 a year forever. The IRR is:Read the answer and worked solution →Cost Rs 10,000; one inflow of Rs 12,100 in 2 years. NPV at 8% is about:Read the answer and worked solution →A project has an IRR of 14% and the cost of capital is 12%. Decision?Read the answer and worked solution →NPV is +2,000 at 10% and -3,000 at 15%. The interpolated IRR is:Read the answer and worked solution →NPV is +6,000 at 15% and -2,000 at 20%. The interpolated IRR is:Read the answer and worked solution →Flows are -123,400, then 36,200, 54,800 and 48,100 over three years. IRR is about:Read the answer and worked solution →Flows are -1,000, -4,000, +5,000 and +2,000 at years 0 to 3. The IRR is about:Read the answer and worked solution →Which pair of IRRs does the cash flow series -10, 21, -11 give?Read the answer and worked solution →Cash flows change sign twice. How many IRRs can there be?Read the answer and worked solution →Flows run outflow, inflow, outflow, inflow. Maximum number of IRRs?Read the answer and worked solution →Which rule limits the number of IRRs by the sign changes in cash flows?Read the answer and worked solution →Which theorem can test if the IRR equation has a unique real solution?Read the answer and worked solution →

Worked practice questions

What does the internal rate of return set equal to zero?

  1. Payback period of the project
  2. Cost of capital of the firm
  3. Accounting profit after tax
  4. Net present value of all cash flows
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Correct answer: D. Net present value of all cash flows

IRR is by definition the discount rate at which the NPV of all inflows and outflows becomes zero.

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Which alternative name is used for the internal rate of return?

  1. Profitability index ratio
  2. Weighted average cost of capital
  3. Discounted cash flow rate of return
  4. Accounting rate of return
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Correct answer: C. Discounted cash flow rate of return

Because IRR is found from discounted cash flows, it is also called the DCF rate of return or yield rate.

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In a savings or loan context, the IRR is also called the:

  1. risk-free rate of return
  2. current dividend yield
  3. nominal coupon rate
  4. effective interest rate
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Correct answer: D. effective interest rate

For deposits and loans the IRR of the cash flows equals the effective interest rate actually earned or paid.

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More Financial Management topics

Sources of FinanceCost of Capital BasicsLeverage (Finance)Working CapitalCapital Structure BasicsDividend BasicsCapital Budgeting BasicsDividend Policies