Q. Show example of Internal rate of return?
IRR (Internal rate of return) is a discounted cash flow investment appraisal method that calculates the discount rate which causes the net present value of an investment to become zero. An investment project is satisfactory if it has an IRR greater than the cost of capital of the investing company. It employs cash flows rather than accounting profits in the evaluation of an investment project. It as well takes account of the time value of money the concept that the value of a given sum of money decreases over time due to the opportunity cost of selecting one investment rather than the best available alternative. IRR considers all cash flows in excess of the life of an investment project and always gives correct advice provided that investment projects being compared are not mutually exclusive.