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IRR is also used for project and capital budgeting decisions.  What does IRR tell a manager...

IRR is also used for project and capital budgeting decisions.  What does IRR tell a manager about a investment or project?

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Answer #1

Definition: -

  1. Internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  2. Internal rate of return is discount rates that makes the Net Present Value (NPV) of all cash flows from a particular project equal to zero.
  3. IRR calculations rely on the same formula as NPV does.

Therefore from Manager’s Point of view:

  • It suggest the manager whether he should opt a particulars project or not
  • It is a measure of project selection.
  • It is used for various project options available and the best resultant option is selected.
  • It simply depicts that :
    • Project generating highest Cash flows (discounted rates) are best to select.
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