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Part 1

The discounting rate, or internal rate of return, brings discounted future cash flows to parity with the initial investment. In other words, it is the discounting rate at which the business will not experience a loss but will also not experience a profit. This rate is also referred to as the return on investment and the marginal efficiency of capital.
The approach of trial and error is used to achieve it. We can alternatively say that the IRR is the pace at which the project's NPV equals zero. Therefore, the present value of cash inflow minus the present value of cash outflow equals zero. If a project's internal rate of return is greater than the required rate of return or the cost of capital, the management will approve the investment.
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