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FIN 3400Essay-Week 3(1) When the discount rate is exactly equal to the internal rate of return (IRR), then theresulting NPV is exactly equal to zero. If we think about the IRR as the actual returnyou get from a given set of cash flows, and the discount rate as what you want the returnto be from the same set of cash flows, then when these are both equal, NPV will bezero. This means what we want to earn on an investment (discount rate) is exactly equalto what the investment’s cash flows actually yield (IRR), and therefore value is equal tocost. However, the possibility of a zero NPV is very remote. In strict economic terms,one should be indifferent to the project, but many projects require furtherconsiderations. I think it is very important to stress the importance that the projectprovides a return just equal to the firm’s required return. (2) Forecasting error is the