Which one of the following defines the internal rate of return for a project?
A)a discount rate that creates a zero cash flow from assets
B)a discount rate which results in a zero net present value for the project
C)a discount rate which results in a net present value equal to the project's initial cost
D)a rate of return required by the project's investors
E)the project's current market rate of return

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that results in a net present value (NPV) of zero for the project. In other words, it is the rate at which the present value of future cash inflows equals the present value of the project's initial investment. Therefore, option B is the correct definition of IRR. Option A is incorrect as it refers to a zero cash flow from assets, not NPV. Option C is incorrect as it assumes the NPV equals the initial cost, not zero. Option D is incorrect as it refers to the required rate of return by the investors, which may or may not be the same as the IRR. Option E is incorrect as it refers to the project's current market rate of return, which is not necessarily equal to the IRR.

Which One of the Following Defines the Internal Rate of Return