101-6 TVM & Calculations - Part 1

Question 1

Internal rate of return

Answer 1

The rate that produces a net present value of a series of discounted cash flows equal to zero

The IRR is the discount rate that, when applied to the cash flows of an investment, equates the net cash inflows to the net cash outflows

If the IRR is > or equal to the investor’s rate of return, the investor should consider making the investment
If the IRR is < the investor’s required rate of return, the investment should not be made