Internal Rate of Return Approach Flashcards
1
Q
What is the internal rate of return (IRR)
A
Determines the discount rate that equates the present value of expected cash inflows with the present value of expected cash outflows
The discount rate is the return for the project
IRR computes the discount rate that makes NPV of cash flows equal to ZERO
2
Q
Equation for IRR?
A
Future annual cash inflow X PV Factor = Investment Cost
PV Factor = Investment Cost/ Future annual cash inflows
