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What is the Internal Rate of Return (IRR)?
What is the Internal Rate of Return (IRR)?
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Practice Questions
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Q1
What is the Internal Rate of Return (IRR)?
The discount rate that makes NPV zero
The rate of return on equity
The average return on investment
The cost of capital
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The Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of a project equal to zero.
Questions & Step-by-step Solutions
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Q
Q: What is the Internal Rate of Return (IRR)?
Solution:
The Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of a project equal to zero.
Steps: 5
Show Steps
Step 1: Understand that IRR is a financial term used to evaluate investments.
Step 2: Know that IRR is the rate at which the money you invest grows over time.
Step 3: Learn that IRR is the discount rate that makes the total value of future cash flows equal to the initial investment.
Step 4: Realize that when you calculate IRR, you want the Net Present Value (NPV) to be zero.
Step 5: Remember that a higher IRR means a more profitable investment.
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