Internal Rate of Return

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:31AM in AAT student discussion
hi all i'm definately stressed out from revising just thought i'd check my take on irr as there's not that much in the book. as i understand it it's like the interest rate on our cashflows what's a bit confusing is where does it come from? is the companys best guest at inflation or is the amount of return they'd like to earn from the money invested
any help would be gratefully received




Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Internal Rate of Return

    to be honest i dont have a clue. ive just memorised the meaning of it. Its the discount rate that will result in the NPV being 0. IRR will only be tested in written form, they wont make you do working outs and that rubbish.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Internal Rate of Return

    thanks i'm still confused stupid thing :? is there only an irr when you want npv to be 0 then, if so what is the rate we use when working out if a project is viable ,where if result is positive then we should proceed if this interest rate isn't irr is it just a rate 10% or 12% or whatever plucked out of thin air??
    any help would be appreciated as although i know how to do the table for these projects i'd remember it better if i actually knew what's what. thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Internal Rate of Return

    Hi,
    The only way that I can remember anything about IRR, is that when after the payback period, and you have a positive NPV, then the IRR is greater then the % rate that you used, almost like a break-even formula.
    Hope this makes a sense

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