The IRR rule states that firms should accept any project offering an internal rate of return in excess of the cost of capitalA. TrueB. False

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Business

Serenity Small

1 June, 14:29

The IRR rule states that firms should accept any project offering an internal rate of return in excess of the cost of capitalA. TrueB. False

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Answers (1)

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Koko · Answer 1

A. True

Explanation:

Internal rate of return abbreviated as IRR, is a capital budgeting technique used to evaluate the profitability of a potential project or an investment. In calculating the IRR, the net present value of the project's cash inflows is set at zero. Getting the actual value of the IRR is through trial and error, or specially programmed software.

IRR shows the growth rate a project or an investment is expected to generate. The higher the value, the better. As a rule, only projects whose IRR is greater than the minimum required rate of return should be accepted. The required rate of return is the same as the cost of capital for the project.