Question

The internal rate of return is:

a. the discount rate that makes the net present value of a project equal to the initial cash
b. outlay equivalent to the discount rate that makes the net present value equal to one tedious
c. to compute without the use of either a financial calculator or a computer highly dependent upon the current interest rates
d. offered in the marketplace a better methodology than net present value when dealing with unconventional cash flows

Answer 1

Answer:

The correct answer is letter "A": the discount rate that makes the net present value of a project equal to the initial cash.

Explanation:

The Internal Return Rate, or IRR, is a central component of corporate finance capital budgeting. Companies use it to determine which discount rate will make the Present Value of the after tax cash flows equal to zero (0). Any project that returns an IRR greater than 0 ads has a value.

In the decision-making process, IRR is subordinated to Net Present Value because it is preferred an absolute dollar amount that is higher than a higher IRR.