Which metric is typically expressed as a percentage?

Which metric is typically expressed as a percentage?

• A. Internal Rate of Return
• B. Net Present Value
• C. Payback Period
• D. Accounting Profit

Answer: (A)

When evaluating investments, some metrics express value in currency while others express a rate of return. Internal Rate of Return is a rate of return—the annualized discount rate that makes the net present value of cash flows zero. Because it’s a rate, it’s naturally shown as a percentage per year. That’s why this metric is typically expressed as a percentage. Net Present Value, in contrast, is a dollar amount—the present value of inflows minus outflows. The Payback Period is measured in years, indicating how long it takes to recover the initial investment. Accounting Profit is also expressed in currency terms, not as a rate. So the one that is commonly shown as a percentage is the Internal Rate of Return.

When evaluating investments, some metrics express value in currency while others express a rate of return. Internal Rate of Return is a rate of return—the annualized discount rate that makes the net present value of cash flows zero. Because it’s a rate, it’s naturally shown as a percentage per year. That’s why this metric is typically expressed as a percentage.

Net Present Value, in contrast, is a dollar amount—the present value of inflows minus outflows. The Payback Period is measured in years, indicating how long it takes to recover the initial investment. Accounting Profit is also expressed in currency terms, not as a rate. So the one that is commonly shown as a percentage is the Internal Rate of Return.