The internal rate of return of a project is the discount rate that:
A) adds the cash outflow to the current period.
B) reduces the cash outflow from the current period.
C) maximizes the net present value of the investment.
D) makes the net present value of the investment zero.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) of a project is the discount rate at which the net present value (NPV) of the cash inflows equal the NPV of the cash outflows. In other words, it is the rate at which the investment breaks even, or has an NPV of zero. Therefore, the correct choice is D: makes the net present value of the investment zero.

The Internal Rate of Return of a Project Is the Discount