Internal Rate of Return - (IRR)

             Internal Rate of Return

The internal rate of return is the rate of return at which the value of NPV is 0.


Decision Criteria

If, 

IRR > Cost of Capital, Accept the project.

IRR < Cost of Capital, Reject the project.


Merits

* It considers the time value of money.
* It takes into account the total cash inflow and outflow.
*It gives the nearest rate of return.


Demerits

* It involves complicated computational method.
* It only can use one discount rate to evaluate every investment.
*Without modification, IRR doesn't account for changing discounts rate.


Formula


"IRR formula", "Formula of IRR", "IRR"
Formula of  IRR







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