Advantagesand Disadvantages of IRR, Finance Basics

Advantagesand Disadvantages of IRR

Advantages of IRR

  • It seems time value of money
  • It seems cash flows over the whole life of the project.
  • It is compatible along with the maximization of owner's wealth since, if it is higher than the cost of finance, owners' wealth will be maximized.

 

Not like the NPV method, it does not employ the cost of finance to discount inflows and for this purpose it will indicate a rate of return of interval to the project against that various ventures can be assessed as to their viability.

Disadvantages of IRR

  • Difficult to utilize.
  • Expensive to use since it calls for trained manpower and may employ computers especially whereas inflows are of large magnitude and extending beyond the general limits.
  • It may give multiple results some involving positive IRR whether in case it may be difficult to utilize in choosing such venture is more viable.
Posted Date: 1/31/2013 1:06:22 AM | Location : United States







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