The internal rate of return may be defined as:
A) the discount rate that makes the NPV 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 these.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of an investment equal to zero. In other words, the IRR is the rate at which the investment's cash inflows and outflows are equal. Therefore, option A is correct. Option B is incorrect because the market rate of interest is not directly related to the IRR. Option C is incorrect because the risk-free rate is not directly used to calculate the IRR. Option D is incorrect because the project acceptance rate set by management is not the same thing as the IRR.

The Internal Rate of Return May Be Defined As