Final answer:
The term for the discount rate that makes a project's net present value equal to zero is the Internal Rate of Return (IRR), which is critical for determining the profitability of potential investments.
Step-by-step explanation:
The term for the discount rate that makes a project's net present value (NPV) equal to zero is known as the Internal Rate of Return (IRR). The IRR is a critical measure in capital budgeting used to assess the profitability of potential investments. It is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.
NPV is used to calculate the profitability of an investment adjusted for the time value of money, where future cash flows are discounted back to the present value using a discount rate. When the NPV equals zero, the discount rate used in this calculation is the IRR. This means, the IRR is the expected compound annual rate of return that will be earned on a project or investment. The concept of present discounted value (PDV) is widely used to determine the current worth of future cash flows and is central to understanding how IRR works.