The internal rate of return on a project
A)is the discount rate that, when applied to a project's cash flows, causes the net present value of the project to be zero.
B)will always be greater than the opportunity cost of capital.
C)will always be greater than zero.
D)All of the above are true statements.

Question

Quizplus · Accepted Answer

The internal rate of return on a project is the discount rate that makes the net present value of the project equal to zero. It is not always greater than the opportunity cost of capital or greater than zero. The internal rate of return (IRR) is the discount rate that causes the net present value (NPV) of a project to be zero. In other words, it is the rate at which the present value of cash inflows equals the present value of cash outflows. Therefore, A is the correct choice as it accurately describes the definition of IRR. B and C are incorrect as they make generalizations that may not always be true.

The Internal Rate of Return on a Project