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 all the cash flows of a project becomes zero. In other words, it is the rate at which the present value of the expected cash inflows equals the present value of the expected cash outflows. Therefore, option A is the correct definition of IRR. Options B, C and D are incorrect definitions.

The Internal Rate of Return May Be Defined As