The internal rate of return of a project can be found by
A)discounting all cash flows at the cost of capital.
B)averaging all cash inflows,and calculating the interest rate,which will make them equal to the average investment.
C)calculating the interest rate,which will equate the present value of all cash inflows to the present value of all cash outflows.
D)None of the above

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the present value of all cash inflows equal to the present value of all cash outflows. Therefore, the correct option is C. Option A refers to calculating the net present value (NPV), not the IRR. Option B is incorrect because averaging cash inflows and matching them with the average investment is not an accurate representation of the project's profitability.

The Internal Rate of Return of a Project Can Be