The internal rate of return may be deﬁned as:
A)the discount rate that makes the NPV cash ﬂows equal to zero.
B)the difference between the market rate of interest and the NPV.
C)the market rate of interest less the risk-free rate.
D)the project acceptance rate set by management.
E)None of the above.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of the cash flows generated by a project equals zero. In other words, it is the rate at which the project's future cash inflows are discounted to equal its initial cash outflow. Choice A describes this definition accurately. The other choices are incorrect in their definition of the IRR.

The Internal Rate of Return May Be Deﬁned As