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.
E) The salvage value of the project is omitted from the analysis.

Question

Quizplus · Accepted Answer

Reducing the initial cost of the project increases the internal rate of return (IRR) because the IRR is calculated based on the net present value (NPV) of cash flows being zero. Lower initial costs mean higher net cash flows, leading to a higher IRR.

The Internal Rate of Return for a Project Will Increase