In using the Internal Rate of Return approach,one must first calculate the discount rate on the investment that makes
A) the net present value equal zero.
B) the interest rate equal zero.
C) the interest rate equal the discount rate.
D) the first year's return positive.

Question

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of an investment becomes zero. Therefore, in order to use the IRR approach to evaluate an investment, the first step is to find the discount rate (IRR) that makes the NPV of the investment equal to zero. Choice A is the correct choice as it directly relates to finding the IRR. The other choices are incorrect as they do not relate to finding the discount rate (IRR).

In Using the Internal Rate of Return Approach,one Must First