Internal Rate of Return (IRR) is the discount rate that:
AEquals the cost of capital
BMaximises EPS
CMakes NPV equal to zero
DEquals the inflation rate
Answer & Solution
Correct answer: C. Makes NPV equal to zero
1. IRR is the rate that makes NPV = 0.
2. Compute by trial-and-error or interpolation between two trial rates.
3. Accept the project if IRR > cost of capital.
_Source: ICAI BoS CA Inter Paper 6A, Ch 7 "Investment Decisions", §8 — IRR_