Define internal rate of return

Question

What do you understand by the term internal rate of return?

Answer 1

Internal rate of return is employed to compute the even break point that is also another way to compute the cost of capital and it consists of the risk premium. It is the rate of return that is employed in capital budgeting that gives the indication of the profitability of investments. This is also named as discounted cash flow rate of return. This cannot be employed for equally exclusive projects where the selection can be done to only one project instead of both the projects.