What is the outcome when the IRR is greater than the required rate of return?

When the internal rate of return (IRR) is greater than the required rate of return, it indicates that the investment is expected to generate a return that exceeds the minimum threshold set by the firm’s cost of capital or the rate required by investors. This situation suggests that the investment is likely to add value to the firm and enhance the shareholders' wealth.

Accepting an investment with an IRR above the required rate aligns with sound financial principles, as it indicates that the project generates sufficient returns beyond what is necessary to compensate for the risks involved. Decision-makers typically seek opportunities where the projected returns exceed the costs, thereby increasing overall profitability. Hence, the appropriate action in such a scenario is to accept the investment, as it is expected to offer a favorable financial outcome.