Question

What do you know about the mathematical value of a project’s internal rate of return under each of the following conditions?

a. The present worth of the project is greater than 0.

b. The present worth of the project is equal to 0.

c. The present worth of the project is less than 0.

d. The future worth of the project is greater than 0.

e. The future worth of the project is equal to 0.

f. The future worth of the project is less than 0.

g. The annual worth of the project is greater than 0.

h. The annual worth of the project is equal to 0.

i. The annual worth of the project is less than 0

Answer 1

The internal rate of return (IRR) is a measure used to evaluate the profitability of an investment project. Its value depends on whether the present worth, future worth, or annual worth of the project is greater than or less than zero. Present discounted value is also used in various fields beyond finance.

Step-by-step explanation:

In finance, the internal rate of return (IRR) is a measure used to evaluate the profitability of an investment project. It represents the discount rate at which the present value of the project's cash inflows equals the present value of its cash outflows. The IRR can be positive or negative, depending on the conditions of the project.

1. If the present worth of the project is greater than 0 (positive), it means the project is expected to generate a profit and the IRR will be greater than the required rate of return.
2. If the present worth of the project is equal to 0, it means the project is expected to break even, and the IRR will be equal to the required rate of return.
3. If the present worth of the project is less than 0 (negative), it means the project is expected to result in a loss, and the IRR will be less than the required rate of return.
4. If the future worth of the project is greater than 0, it means the project's cumulative cash inflows exceed the cumulative cash outflows, and the IRR will be positive.
5. If the future worth of the project is equal to 0, it means the project's cumulative cash inflows are equal to the cumulative cash outflows, and the IRR will be zero.
6. If the future worth of the project is less than 0, it means the project's cumulative cash inflows are less than the cumulative cash outflows, and the IRR will be negative.
7. If the annual worth of the project is greater than 0, it means the project generates a positive annual cash inflow, and the IRR will be greater than the required rate of return.
8. If the annual worth of the project is equal to 0, it means the project generates neither a positive nor a negative annual cash flow, and the IRR will be equal to the required rate of return.
9. If the annual worth of the project is less than 0, it means the project generates a negative annual cash flow, and the IRR will be less than the required rate of return.

The concept of present discounted value and the analysis of cash flows over time are also applied in various fields such as business, government decision-making, environmental policies, and personal financial planning.