The internal rate of return (IRR) for a project can be determined
A) If the IRR is greater than the firm's cost of capital.
B) Only if the project's cash flows are constant.
C) By finding the discount rate that yields a net present value (NPV) of zero for the project.
D) By subtracting the firm's cost of capital from the project's profitability index.
E) Only if the project's profitability index is greater than one.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of a project's cash flows equal to zero. Therefore, the IRR can be determined by finding the discount rate that yields an NPV of zero for the project. Choices A, B, D, and E are incorrect because they do not accurately describe how to determine the IRR.

The Internal Rate of Return (IRR) for a Project Can