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The Basics of Capital Budgeting: IRRIRR A project's internal rate of return (IRR)is the (Select: compound rate, discount rate, or risk-reerate) that forces the PV of its inflows to equal its cost.The IRR is an estimate of the project's rate of return, and it iscomparable to the (Select: YTM, Coupon, gain) on abond.CFt is the expected cash flow in Period t and cashoutflows are treated as negative cash flows. There must be a changein cash flow signs to calculate the IRR. The IRR equation is simplythe NPV equation solved for the particular discount rate thatcauses NPV to equal (Select: IRR, one, zero)The IRR calculation assumes that cash flows are reinvested atthe (Select: IRR, NPV, WACC). If the IRR is(Select: less, greater) Correct 5 of Item 1 thanthe project's risk-adjusted cost of capital, then the projectshould be accepted; however, if the IRR is less than the project'srisk-adjusted cost of capital, then the project should be(Select: accepted, rejected). Because of the IRRreinvestment rate assumption, when (Select: mutuallyexclusive, independent) projects are evaluated the IRRapproach can lead to conflicting results from the NPV method. Twobasic conditions can lead to conflicts between NPV and IRR:(Select: return, timing, preference) differences(earlier cash flows in one project vs. later cash flows in theother project) and project size (the cost of one project is largerthan the other). When mutually exclusive projects are considered,then the (Select: IRR, NPV) method should be usedto evaluate projects.