The internal rate of return is a measure of:

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is a financial metric used to gauge the profitability of a potential investment. IRR calculates the rate of return that an investment is expected to generate based on the cash flows it is expected to generate over its lifetime. The calculation takes into account the time value of money, or the idea that a dollar received in the future is worth less than a dollar received today due to inflation and potential interest or investment earnings. Therefore, answer A is correct. Answer B is incorrect because IRR is not based on accounting income, but rather on the expected cash flows. Answer C is partially correct because IRR does discount future cash flows, but it is not the rate used to discount them - IRR is the rate that makes the net present value of the cash flows equal to zero. Answer D is incorrect because IRR is not necessarily the same as the firm's cost of capital, which is the minimum rate of return that a project or investment must meet in order to be considered worthwhile.

The Internal Rate of Return Is a Measure Of