The correct answer is: D. relative profitability
Internal rate of return (IRR) is a measure of a project’s profitability. It is the rate of return that a project earns on its invested capital. A project is considered to be profitable if its IRR is greater than the company’s cost of capital.
IRR can be modified to make it representative of relative profitability by using a different discount rate. The discount rate is the rate of return that a company expects to earn on its investments. By using a different discount rate, you can calculate the IRR for a project that is more or less risky than the company’s average investment.
For example, if a company’s cost of capital is 10%, and a project has an IRR of 12%, then the project is considered to be profitable. However, if the company’s cost of capital is 15%, then the project is not considered to be profitable.
By using a different discount rate, you can calculate the IRR for a project that is more or less risky than the company’s average investment. This can be helpful in making decisions about whether or not to invest in a project.
Here is a brief explanation of each option:
- A. relative outflow – This is not a valid option. IRR is a measure of profitability, not outflow.
- B. relative inflow – This is not a valid option. IRR is a measure of profitability, not inflow.
- C. relative cost – This is not a valid option. IRR is a measure of profitability, not cost.
- D. relative profitability – This is the correct option. IRR is a measure of profitability, and it can be modified to make it representative of relative profitability by using a different discount rate.