Which one of the following statements related to the internal rate of return (IRR) is correct?

Which one of the following statements related to the internal rate of return (IRR) is correct?

A. The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects.

B. A project with an IRR equal to the required return would reduce the value of a firm if accepted.

C. The IRR is equal to the required return when the net present value is equal to zero.

D. Financing type projects should be accepted if the IRR exceeds the required return.

Answer: C. The IRR is equal to the required return when the net present value is equal to zero.

The internal rate of return, often abbreviated to IRR, is the discount rate at which the project’s net present value equals zero. In other words, it refers to the rate of return that brings the value of money, which is expected to be received in the future, to the value of money that is being invested initially. When the IRR equals the required rate of return, the NPV of the project equals $0 hence indicating that the project is at break-even point. The result of the IRR above the required rate of return indicates a positive NPV which shows that the project should be accepted as profitable. On the other hand, if IRR is less than the required rate of investment, NPV would be zero and hence such a project should be rejected