A new manager received computations of the internal fate of return regarding the project proposal. What should the manager compare the computation results to in order to determine whether the project is potentially acceptable?

The Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of all cash flows from a project equals zero. The fundamental decision rule for IRR is to compare it to the organization's required rate of return, also known as the hurdle rate. If the project's IRR is greater than the required rate of return, the project is considered financially acceptable because it is expected to generate returns exceeding the minimum acceptable threshold for the investment's level of risk.

A. The cost of capital is often used as the required rate of return, but "required rate of return" is a more precise and comprehensive term.
B. Annual interest data only reflects the cost of debt, not the overall required return which includes equity financing and risk premiums.
D. Net present value (NPV) is a separate capital budgeting metric. IRR is compared to a rate (the hurdle rate), not a dollar value like NPV.

1. Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance (12th ed.). McGraw-Hill Education. Chapter 5, Section 5-2, "The Internal Rate of Return," explains the IRR rule is to accept projects offering rates of return in excess of the opportunity cost of capital.

2. MIT OpenCourseWare. (2008). 15.401 Finance Theory I, Fall 2008. Lecture Notes, "Lecture 3: The Time Value of Money; Valuing Cash Flow Streams." The notes specify the IRR Rule: "Accept any investment opportunity where IRR exceeds the opportunity cost of capital."