What term describes the compound rate of interest that equalizes the time values of study period costs and benefits in a project?

The term that describes the compound rate of interest that equalizes the time values of costs and benefits in a project is known as the internal rate of return (IRR). The IRR is a key financial metric used to evaluate the potential profitability of a project or investment. It represents the discount rate at which the net present value (NPV) of all cash flows (both incoming and outgoing) from a project equals zero.

This means that at the IRR, the present value of expected benefits matches the present value of costs, making it an essential tool for capital budgeting decisions. When the IRR is greater than the cost of capital or required rate of return for the project, it indicates that the project is likely to generate value and thus be worthwhile. Conversely, if the IRR is lower than the cost of capital, it suggests that the investment would not meet the necessary return benchmarks.

Understanding the IRR is critical for cost technicians, as it helps them make informed recommendations about which projects to pursue or to modify based on the anticipated financial performance.