The internal rate of return for an investment project is best defined as the:
A)discount rate that causes the net present value to equal zero.
B)difference between the market rate of interest and the discount rate.
C)market rate of interest less the risk-free rate.
D)minimum project acceptance rate set by management.
E)maximum rate that can be earned for a project to be accepted.

Question

Quizplus · Accepted Answer

The internal rate of return is the discount rate that makes the net present value of the project equal to zero. In other words, it is the rate of return that a project is expected to generate. Option B is incorrect because the market rate of interest and the discount rate may or may not be the same, and the difference between them is not the definition of internal rate of return. Option C is also incorrect because it refers to the risk-free rate, which is not directly related to IRR. Options D and E are incorrect because they are not related to the calculation or definition of internal rate of return.

The Internal Rate of Return for an Investment Project Is