Internal rate of return:
A) Is used for short term decisions
B) Does not incorporate the time value of money
C) Calculates the net present value of a project
D) Calculates the return at which the net present value is zero

Question

Quizplus · Accepted Answer

Internal rate of return (IRR) calculates the return at which the net present value of a project is zero. Therefore, option D is the correct choice. Option A is incorrect because IRR is used for long-term decisions. Option B is incorrect because IRR incorporates the time value of money. Option C is incorrect because IRR calculates the return, not the net present value.

Internal Rate of Return