Which one of the following defines the internal rate of return for a project?
A) Discount rate that creates a zero cash flow from assets
B) Discount rate which results in a zero net present value for the project
C) Discount rate which results in a net present value equal to the project's initial cost
D) Rate of return required by the project's investors
E) The project's current market rate of return

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate at which the present value of expected cash inflows from a project equals the present value of expected cash outflows, resulting in a zero net present value (NPV) for the project. Therefore, option (B) is the correct definition of IRR. Option (A) describes the concept of the modified internal rate of return, and option (C) describes the breakeven discount rate. Option (D) is the required rate of return for the project's investors, and option (E) is not related to IRR.

Which One of the Following Defines the Internal Rate of Return