Question

what is the internal rate of return on an investment? what are the acceptance criteria for...

what is the internal rate of return on an investment? what are the acceptance criteria for IRR?

Homework Answers

Answer #1

INTERNAL RATE OF RETURN IS RETURN WHICH MAKES PV OF ALL CASH INFLOWS EQUAL TO INITIAL INVESTMENT

THAT IS NPV = 0

NPV = 0 = PV OF ALL CASH INFLOWS - INITIAL INVESTMENT

OR

PV OF ALL CASH INFLOWS = INITIAL INVESTMENT

ACCEPTANCE CRITERIA

IF IRR > REQUIRED RATE OF RETURN, WE SHOULD ACCEPT THE PROJECT

WHEN WE CONSIDER MUTUALLY EXCLUSIVE PROEJCTS, SELECT THE PROJECT WITH HIGHER IRR

WHEN WE CONSIDER INDEPENDENT PROJECTS, SELECT ALL THE PROJECTS WHICH HAVE IRR > REQUIRED RATE OF RETURN

IRR FAILS WHEN WE HAVE NON-COVENTIONAL CASH FLOWS, THAT IS MORE THAN ONE CASH OUTFLOWS. BECAUSE IN THAT CASE, WE HAVE MORE THAN ONE IRR AND IT IS DIFFICULT TO DETERMINE WHICH ONE TO ACCEPT.

IRR ASSUMES THAT ALL CASH FLOWS ARE REINVESTED AT IRR RATE

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Describe the internal rate of return (IRR) as a method for deciding the desirability of a...
Describe the internal rate of return (IRR) as a method for deciding the desirability of a capital budgeting project. What is the acceptance benchmark when using IRR?
ALL OF THE BELOW ARE TRUE ABOUT INTERNAL RATE OF RETURN EXCEPT Select one: a. ACCEPT...
ALL OF THE BELOW ARE TRUE ABOUT INTERNAL RATE OF RETURN EXCEPT Select one: a. ACCEPT THE PROJECT IF IRR IS LESS THAN THE DISCOUNT RATE b. NPV EQUAL ZERO c. ACCEPT THE PROJECT IF IRR IS HIGHER THAN THE DISCOUNT RATE d. IRR IS A WAY TO EVALUATE THE ACCEPTANCE OF A PROJECT Please Solve As soon as Solve quickly I get you two UPVOTE directly Thank's Abdul-Rahim Taysir
4. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound...
4. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $800,000. The company has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to...
What is the Internal Rate of Return on an investment with the following cash flows? Year...
What is the Internal Rate of Return on an investment with the following cash flows? Year Cash Flow... 0 -$761,125 1 $330,500 2 $454,700 3 $161,200 Answers: a. 12.93 percent b. 9.42 percent c. 11.88 percent d. 14.71 percent e. 10.96 percent
The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are...
The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Delta is 11.3%, but he can’t recall how...
The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are...
The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Delta is 11.3%, but he can’t recall how...
List and briefly discuss the advantages and disadvantages of the internal rate of return (irr).
List and briefly discuss the advantages and disadvantages of the internal rate of return (irr).
Can a project's Internal Rate of Return (IRR) be calculated without knowing the discount rate? Explain.
Can a project's Internal Rate of Return (IRR) be calculated without knowing the discount rate? Explain.
Using Internal Rate of Return (IRR) for analysis can be flawed because a. the discount rate...
Using Internal Rate of Return (IRR) for analysis can be flawed because a. the discount rate can be overstated b. project cash flows are expected to be reinvested at the internal rate of return c. the project's cash flows can be back loaded d interest rates can change over time for extended projects e it is generally easier to understand a project's Net Present Value rather than its Internal Rate of Return
Define Internal Rate of Return and explain what it measures.
Define Internal Rate of Return and explain what it measures.