Internal rate of return irr, finance, Other Engineering

Internal rate of return IRR
In case of IRR method cash flow are analyzed taking into account the magnitude and the timing. IRR is that discount rate which gives a net present value equal to zero. The IRR method will also give the same decision as the NPV method in case of non-mutually exclusive projects. In case of independent projects one with highest IRR will be accepted (Robert Parrino & David s. Kidwell, 2009).

Where r= Internal Rate of Return
K=opportunity cost of capital.
Merits of IRR:
• Like NPV method, IRR methods also consider time value of money.
• All cash flow are taken to calculate rate of return
• Shareholders wealth maximinsation objectives given importance.
Demerits of IRR:
• Given misleading and inconsistent result when the NPV does not decline with the discount rate.
• Difficulty in making decision when mutually exclusive project exists
• IRR method fails to give an actual exists annual profitability of an investment.
• IRR method makes in realistic assumption that interim positive cash flow are reinvested at the same rate of return.
• More than one IRR exists for projects with alternative cash flow this leads to confusion and ambiguity (I.M. Pandey, 2005).
Posted Date: 2/6/2012 10:34:36 PM | Location : United States

Related Discussions:- Internal rate of return irr, finance, Assignment Help, Ask Question on Internal rate of return irr, finance, Get Answer, Expert's Help, Internal rate of return irr, finance Discussions

Write discussion on Internal rate of return irr, finance
Your posts are moderated
Related Questions
Allowances for pattern : A pattern is always made larger than the required size of the casting in order to allow for various factor, such as shrinkage, machining, distortion and r

give me basic programming of vhdl

why alcoholic acidity is necessary?

For ramjets, turbojets and turbofans

Q. Explain the mechanism for dislocation in plastic deformation. Ans.  Stresses are acting on dislocation in a crystal that is known as stress field, due to these stress forc

procedure to assemble the spindle in the cnc mzachine.........

original temp. of plate is 25 degree c.when put in burnace its upper part is 250 c and lower is 100 and mass is 56kg.find out heat transfer

determine forces in each member of equilqteral truss

Outcomes of the FRA: When interpreting the outcomes of the FRA, NFPA 551 states that there are two ways in which the situation can be assessed to determine if it is acceptable