Practice Question
The internal rate of return (IRR) is the discount rate that makes the NPV of a project equal to zero.
Answer +
TRUE
Step-by-step solutions +
Step 1: Understand the IRR definition.
The internal rate of return (IRR) is the rate at which the present value of future cash flows equals the initial investment — in other words, it makes the Net Present Value (NPV) zero.
Step 2: Application in project evaluation.
IRR is used to evaluate the profitability of potential investments. If the IRR is greater than the required rate of return, the project is considered acceptable.
Step 3: Conclusion.
Since the IRR is the discount rate that results in a zero NPV, the statement is TRUE.