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The internal rate of return is found in practice by

  • A.dividing the total receipts by the first cost
  • B.differentiating the present worth function
  • C.averaging the annual returns over the life
  • D.trial rates and interpolation between them

Answer: D

The equation is a polynomial of degree equal to the number of periods and has no general closed-form solution, so two trial rates bracketing the root are found and the answer interpolated. Spreadsheets do the same thing iteratively.

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