B2-M9 Financial Decision Models 2

Question 1

what is internal rate of return?

Answer 1

the technique that determines the present value factor such that the present value of the after tax cash flows equals the initial investment on the project. Alternately, the internal rate of return (IRR) is the discount rate that produces a NPV of zero

a time-adjusted rate of return from an investment

Question 2

How to calculate IRR?

Answer 2

factor IRR = net incremental investment (investment required)/net annual cash flows
then:
locate the factor derived above to identify the rate of return it represents

Question 3

what does payback method measure?

Answer 3

payback method measures the time required to recover the initial investment