The IRR is defined as
A)the discount rate that makes a project's NPV equal to zero.
B)the difference between the cost of capital and the present value of the cash flows.
C)the discount rate used in the NPV method.
D)the discount rate used in the discounted payback period method.

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. In other words, it is the rate at which the investment will break even. Therefore, option A is the correct answer. Option B is incorrect, as it describes the cost of capital and not the IRR. Option C is partially correct, as the discount rate used in the NPV method is the cost of capital, but it is not the IRR. Option D is incorrect, as the discounted payback period method does not use a discount rate.

The IRR Is Defined as