Acceptance rule of irr, Finance Basics

Acceptance Rule of IRR

IRR will accept a venture if its IRR is higher than or equivalent to the minimum required rate of return such is usually the cost of finance also recognized as the cut off rate or hurdle rate, and in this case IRR will be the highest rate of interest a firm would be prepared to pay to finance a project by borrowed funds and without being financially worse off with paying back the loan or the principal and accrued interest so out of the cash flows generated with that project.  Hence, IRR is the break-even rate of borrowing from commercial banks.

Posted Date: 1/31/2013 1:05:34 AM | Location : United States

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