What is meant by the term 'Internal Rate of Return'?
A) The rate of return that equates the future value of cash flows with the outlay
B) The rate of return that equates the present value of future cash flows with opportunity cost
C) The rate of return that equates the outlay with the predicted overall profit
D) The rate of return that equates the present value of future cash flows with the outlay

Question

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) is defined as the rate of return that equates the present value of future cash flows with the outlay. In other words, it is the discount rate that makes the net present value of all cash flows from a particular investment equal to zero. It is a widely used metric in capital budgeting and helps in determining whether an investment is profitable or not.

What Is Meant by the Term 'Internal Rate of Return