The internal rate of return is the discount rate at which the NPV of a project is zero. Therefore, the IRR of this project will be the discount rate in between the discount rate of the lowest positive NPV (the positive amount closest to zero) which is $460 and the discount rate of the lowest negative NPV (the negative amount closest to zero) which is ($440). 8% is the discount rate of the lowest positive NPV. The internal rate of return is the discount rate at which the NPV of a project is zero. At a discount rate of 6%, the NPV of the project is $1,420; so 6% cannot be the internal rate of return for this project. The internal rate of return is the discount rate at which the NPV of a project is zero. Therefore, the IRR of this project will be the discount rate in between the discount rate of the lowest positive NPV (the positive amount closest to zero) which is $460 and the discount rate of the lowest negative NPV (the negative amount closest to zero) which is ($440). 10% is the discount rate of the lowest negative NPV. The internal rate of return is the discount rate at which the NPV of a project is zero. Therefore, the IRR of this project will be the discount rate in between the discount rate of the lowest positive NPV (the positive amount closest to zero) which is $460 and the discount rate of the lowest negative NPV (the negative amount closest to zero) which is ($440). The discount rate of the lowest positive NPV is 8% and the discount rate of the lowest negative NPV is 10%. Therefore, the IRR is in between 8% and 10%. Since the size of the positive NPV and the size of the negative NPV that go with the 8% and 10% discount rates are approximately equal, we also know that the IRR must be almost exactly in between 8% and 10%. The only answer choice between 8% and 10% is 9%.
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