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
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