السؤال — عربي
تلقى مدير جديد حسابات معدل العائد الداخلي (internal rate of return - IRR) المتعلقة بمقترح المشروع. ما الذي يجب على المدير مقارنة نتائج الحساب به لتحديد ما إذا كان المشروع مقبولاً بشكل محتمل؟
Question — English
A new manager received computations of the internal rate of return regarding the project proposal. What should the manager compare the computation results to in order to determine whether the project is potentially acceptable?
الخيارات — عربي
Options — English
💡 A. Compare to the annual cost of capital – ᤶ
ᤷ Incorrect
The cost of capital represents the company's overall
financing cost, including debt and equity.
While it is related to investment decisions, projects are
typically evaluated using the required rate of return
(RRR), which is often derived from the cost of capital but
includes risk adjustments.
B. Compare to the annual interest rate – ᤶ
ᤷ Incorrect
The interest rate applies to debt financing but does not
fully capture the expected return required by investors
for taking on project risk.
Comparing IRR to an interest rate alone does not
provide a complete picture of whether the project
meets the company's investment expectations.
C. Compare to the required rate of return (RRR) –
Correct
Answer
The internal rate of return (IRR) is a project's expected
return, expressed as a percentage.
To determine if the project is acceptable, IRR should be
compared to the required rate of return (RRR), which
represents the minimum return needed to justify the
investment.
Acceptance criteria:
o
IRR ≥ RRR → Accept the project.
o
IRR < RRR → Reject the project.
D. Compare to the net present value (NPV) – ᤶ
ᤷ Incorrect
NPV and IRR are related but different metrics.
NPV measures the absolute dollar value of expected
benefits, while IRR measures the percentage return.
If using NPV, the decision rule is:
o
NPV > 0 → Accept the project.
o
NPV < 0 → Reject the project.
However, when working with IRR, the correct
comparison is with the RRR, not NPV.