Thursday, May 22, 2008

IRR

If feasibilty of a project depends on IRR should grater than bank interest rate. Than what the hell is IRR for?

Internal rate of return.The internal rate of return (IRR) is a capital budgeting metric used by firms to decide whether they should make investments. It is an indicator of the efficiency of an investment, as opposed to net present value (NPV), which indicates value or magnitude.
The IRR is the annualized effective compounded return rate which can be earned on the invested capital, i.e., the yield on the investment.
A project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments (investing in other projects, buying bonds, even putting the money in a bank account). Thus, the IRR should be compared to any alternate costs of capital including an appropriate risk premium.
Mathematically the IRR is defined as any discount rate that results in a net present value of zero of a series of cash flows.-Wikipedia

1 comment:

Blogger Hassan said...

Should I comment on my own Blog?