The internal rate of return identifies:
A)the minimum acceptable discount rate
B)the benefit-cost ratio
C)the average profit from a project
D)none of the given answers
E)all of the given answers

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of a project equal to zero. It is the minimum acceptable discount rate because any discount rate higher than the IRR will result in a negative NPV, and any discount rate lower than the IRR will result in a positive NPV. The IRR is not the benefit-cost ratio, which is the ratio of the present value of the benefits of a project to the present value of the costs of the project. The IRR is also not the average profit from a project, which is the total profit from the project divided by the number of years of the project.

The Internal Rate of Return Identifies