Question

When calculating IRR with a trial and error process, discount rates should usually be raised when NPV is positive.

A. True

B. False

Answer 1

The statement is True

The Internal rate of return is the average rate of return that a project gives over the lifetime of project and The discount rate is the rate at which the cash flows are discounted and when the Net present value is positive for a certain discount rate we usually raise the Discount rate because the IRR is the rate where the Net present value is Zero and the increased rate will lead to higher discounting of cash flows leading the Net present value close to zero.