Unit 6- Costing

imota

Can somebody help me with this questions, please.

C) The internal rate of return (IRR) of the project is 12.5%. Explain the meaning of the IRR and why this can be useful in project evaluation.

A-Vic

imota wrote: »

Can somebody help me with this questions, please.

C) The internal rate of return (IRR) of the project is 12.5%. Explain the meaning of the IRR and why this can be useful in project evaluation.

This is and please quote me if am wrong

IRR Is the amount of time it takes to recevie your money back from an investment e.g

you buy a peice of machinery for 1000 it makes 500 per year

So the investment return would be 2 years

A-Vic

A-Vic wrote: »

This is and please quote me if am wrong

IRR Is the amount of time it takes to recevie your money back from an investment e.g

you buy a peice of machinery for 1000 it makes 500 per year

So the investment return would be 2 years

i might be wrong gonna look it up sorry

Bookworm55

The Internal Rate of Return is the discount rate at which the net present value of the project is zero. This means that if the project was financed with a loan that carried a 12.5% interest rate, then it would neither make nor lose money for the organisation.

If the cost of capital of the organisation is less than 12.5%, then the project will increase the value of the organisation as a whole and so should be undertaken. If it cannot, then it wil destroy value and should not be undertaken. For example, if it could finance the project with an 8% loan, then it would make money.

Mikeyabosbht

Hahaha! A-Vic that's Payback not IRR!

A-Vic

Mikeyabosbht wrote: »

Hahaha! A-Vic that's Payback not IRR!

slaps head lol doh!