Answer (C) is correct . The IRR is a capital budgeting technique that calculates the interest rate that yields a net present value equal to $0. It is the interest rate that will discount the future cash flows to an amount equal to the initial cost of the project. Thus, the higher the IRR, the more favorable the ranking of the project.
Answer (A) is incorrect because The cost of capital is not used in the calculation of the IRR.
Answer (B) is incorrect because The IRR can be determined regardless of the constancy of the cash flows. However, it is more difficult to calculate when cash flows are not constant because a trial-and-error approach must be used.
Answer (D) is incorrect because There is no relationship between IRR and the profitability index.
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