Project Selection - Internal Rate of Return



Definition
Internal rate of return (IRR) is the interest rate at which the cash inflow and cash outflow of the project equals zero.

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Sample Question
There are three projects for you to choose from: Project A has an internal rate of return of 15%, Project B 20% while Project C -20%. Based on the information provided, which is the best project?

A. Project A
B. Project B
C. Project C
D. Not enough information provided

Solution: B

Higher the better
The larger the IRR, the more favorable the project financially is to the organization.

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