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      Question

      The Internal Rate of Return (IRR) is the discount rate

      at which:
      A The Profitability Index is 1. Correct Answer Incorrect Answer
      B The Net Present Value (NPV) is zero. Correct Answer Incorrect Answer
      C The Payback Period equals the project life. Correct Answer Incorrect Answer
      D The accounting rate of return is maximum. Correct Answer Incorrect Answer

      Solution

      By definition, the Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of all cash flows from a particular project equal to zero. It is the break-even cost of capital.

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