If the cost of capital rises, an investment's internal rate of return falls.

Question

If the cost of capital rises, an investment's internal rate of return falls.​

Quizplus · Accepted Answer

The internal rate of return (IRR) is a metric used to evaluate the profitability of potential investments. It is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. The IRR itself does not change when the cost of capital changes. What changes is the investment's attractiveness compared to the cost of capital. If the cost of capital rises, the investment might no longer be attractive if its IRR is below the new, higher cost of capital, but the IRR value itself remains the same.

If the Cost of Capital Rises, an Investment's Internal Rate