What is the first step of the internal rate-of-return (IRR)method?

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Quizplus · Accepted Answer

The first step of the IRR method is to use a discount rate and calculate the project's NPV. The IRR is the discount rate that makes the project's NPV equal to zero. Therefore, it is essential to calculate the NPV before determining the IRR. A sensitivity analysis may be used later to assess the project's sensitivity to changes in the discount rate, but it is not the first step of the IRR method. Ignoring the discount rate in the NPV computation would result in an incorrect NPV calculation. Similarly, calculating the net initial investment or payback period is not a part of the IRR method.

What Is the First Step of the Internal Rate-Of-Return (IRR)method