Which of the following best describes the internal rate-of-return (IRR) method?
A) it calculates the discount rate at which an investment's present value of the total of all expected cash inflows equals the present value of its expected cash outflows.
B) it calculates the discount rate at which an investment's future value of all expected cash inflows equals the present value of its expected cash outflows.
C) it calculates the discount rate at which an investment's total of all expected cash inflows equals the present value of its expected cash outflows.
D) it calculates the discount rate at which sum of an investment's present value of all expected cash inflows equals the present value of its expected cash outflows.

Question

Quizplus · Accepted Answer

The internal rate-of-return (IRR) method calculates the discount rate at which the sum of an investment's present value of all expected cash inflows equals the present value of its expected cash outflows. This means that the IRR is the rate at which the investment breaks even, and any rate of return above the IRR is considered profitable. Therefore, option D is the correct description of the IRR method.

Which of the Following Best Describes the Internal Rate-Of-Return (IRR)