Basic IRR rule

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Definition: Basic IRR rule

IRR refers to the internal rate of return which is the discount rate for which the NPV of a project becomes zero.

IRR is used in project appraisal and thus, the basic IRR rule states that an organization should accept a project if the IRR is greater than the discount rate for the NPV calculation.

If an appraisal is being carried out for multiple projects which are mutually exclusive then the project with the highest IRR should be selected.

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