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What does the IRR of a project represent?

  1. A The discount rate at which NPV equals zero
  2. B The rate of inflation over the project life
  3. C The interest rate charged by lenders
  4. D The return required by shareholders
Answer

The discount rate at which NPV equals zero

IRR is the break-even discount rate. A project is generally accepted if its IRR exceeds the cost of capital, though IRR can mislead with unconventional cash flows.

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