The internal rate of return (IRR) of a project is the discount rate that causes the NPV to equal zero. IRR can be calculated by trial and error. Using the NPV framework, a discount rate can be ar- bitrarily selected and an NPV calculated. If the resulting NPV is positive, select a higher discount rate and again calculate the NPV. > If the resulting NPV is negative, select a lower discount rate and again calculate the NPV. Repeat the process until the discount rate se- lected causes the NPV to equal zero. IRR can also be calculated by many handheld calculators and computers.

If the only cash inflow is an annuity, the IRR can be found by using the present value of an ordi¬ nary annuity table. LO.1