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The Internal Rate of Return of a project is the discount rate which makes it NPV to zero. The IRR is compared with RRR or cost of capital. If the IRR exceeds the required return, the project is accepted; if not the project is rejected:

internal rate of return formula

 

Example 1:

Consider the following cash flows and calculate IRR.

internal rate of return irr example

irr solved example(Acceptance Criterion: The higher the IRR the better the project)



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References

Financial Management: Theory and Practice, Dr Eugene F Brigham & C Micheal Ehrhardt

Fundamentals of Financial Management: Concise Edition, Brigham Houston

The Economist Guide to Financial Management, John Tennet

Financial Management: Core Concepts, Raymond M Brooks

1 Comment

  1. Sarita

    Super notes