Detailed Answer
Answer (C) is correct. When a company prepares the first draft of its pro forma income statement, management must evaluate whether earnings meet company objectives. This evaluation is based on such factors as desired earnings per share, average earnings for other firms in the industry, a desired price-earnings ratio, and needed return on investment. The internal rate of return is used to evaluate long-term investments, not budgets It is the discount rate at which a project’s net present value is zero
