The internal rate of return for a project can be determined:
A)only if the project's cash flows are constant.
B)by finding the discount rate that yields a zero net present value for the project.
C)by subtracting the company's cost of capital from the project's profitability index.
D)only if the project profitability index is greater than zero.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) for a project can be determined by finding the discount rate that results in a net present value of zero for the project. This is because the IRR is the discount rate that makes the present value of cash inflows equal to the present value of cash outflows. The cash flows for a project do not need to be constant for the IRR to be calculated, and the project profitability index and the company's cost of capital are not directly related to the calculation of the IRR.

The Internal Rate of Return for a Project Can Be