The internal rate of return: Question 5 options:

may produce multiple rates of return when cash flows are conventional

is best used when comparing mutually exclusive projects

is rarely used in the business world today

is principally used to evaluate small dollar projects is easy to understand

projects is easy to understand

Explanation:

Internal rate of return (IRR) is defined as the interest rate at which net present value (NPV) of all the cash flows generated from a project (can be investment as well) is equal to zero.

Internal rate of return is used to gauge the attractiveness of a project. If the IRR of any project is more than that of a company's desired rate of return, that project is attractive. If IRR is less than the desired rate of return, project is not profitable and should be rejected.

when project is mutually exclusive NPV is used to gauge attractiveness of the project.