Internal rates of return for three alternative investment projects follow. Each project has a five-year life. The
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Internal rates of return for three alternative investment projects follow. Each project has a five-year life. The company requires a 12% rate of return on its investments.
(a) Which project(s) will the company accept on the basis of internal rate of return?
(b) If the company can choose only one project, which will it choose?
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Potential Projects Project X Project Y Project Z Internal rate of return 13% 11% 15%
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Internal rate of return is a method of calculating an investment’s rate of return. The term internal refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or financial risk.
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