This textbook is available at## Fundamentals of Financial Management (15th Edition)

Book Edition | 15th Edition |

Author(s) | Brigham |

ISBN | 9781337395250 |

Publisher | Cengage Learning |

Subject | Finance |

SelfTest

SelfTest

Self-Test Questions and Problems

Questions

Problems

Comprehensive/Spreadsheet Problem

Integrated Case

Chapter 11, Section 11-3, SelfTest, Exercise 05

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In what sense is a project's IRR similar to the YTM on a bond?

The calculations for finding internal rates of return (IRRs) and bond yields are similar.

The yield to maturity on a bond is the rate of return the investor will earn based on its price and the amount received in future payments (the required rate of return). These are similar principles to the internal rate of return concept in the project as the price would be comparable to the cost of the project, and the future payments would be comparable to the cash flows from the project.

A project's internal rate of return (IRR) is the discount rate that forces the net present value to equal zero. This is the same as forcing the present value of bond cash flows equal to the current bond price. Therefore, the project's IRR is the equivalent of the yield to maturity on a bond.

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