ECONOMICS

Detailed explanation-1: -The internal rate of return is the rate at which the present value of cash inflows is equal to the initial outflow of the investment. In other words, both are equated at this rate.

Detailed explanation-2: -PV(Present Value): PV is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.

Detailed explanation-3: -The IRR represents the time-adjusted rate of return for the investment being considered. The IRR decision rule states that if the IRR is greater than or equal to the company’s required rate of return (recall that this is often called the hurdle rate), the investment is accepted; otherwise, the investment is rejected.

Detailed explanation-4: -Zero NPV: In this situation, the present value of cash inflows equals the present value of cash outflows. You may or may not accept the project.