The internal rate of return for a project will increase if:
A) the initial cost of the project can be reduced.
B) the total amount of the cash inflows is reduced.
C) each cash inflow is moved such that it occurs one year later than originally projected.
D) the required rate of return is reduced.

Question

Quizplus · Accepted Answer

Reducing the initial cost of the project increases the internal rate of return (IRR) because the IRR is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. Lower initial costs mean higher profitability relative to the investment, thus increasing the IRR.

The Internal Rate of Return for a Project Will Increase