IRR

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
Hi,<BR><BR>could anyone explain to me briefly the meaning of IRR, I have revised this gain and again but am not sure I fully understand it?<BR><BR>Thanks<BR>

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    IRR

    refer to page 2 on the forum title IRR.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    IRR

    'IRR is the discount rate at which the NPV is zero. This is the point at which a project breaks even'. I hope this helps, good luck!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    IRR

    Hi<BR><BR>I struggled with this, so will try to explain it in 3 different ways for you, hopefully one of them will make sense!<BR><BR>The IRR is the interest rate that will result in a NPV of zero for a set of cash flows.<BR><BR>If this doesn't make sense, try thinking of it as the rate of interest at which a project will break even<BR><BR>Or, the present value of the cashflows will exactly balance the initial investment when this rate of interest is applied.<BR><BR>If comparing 2 projects, the one with the highest IRR is preferable.<BR><BR>If you are given the company's cost of capital (rate of return) as 15% - the IRR should be higher than this for the project to go ahead (ie if the IRR was 20% this would be ok, if the IRR was 12% the project should be rejected)<BR><BR>Hope this helps<BR><BR>Lynn
  • System
    System Posts: 100,534 🤖 Admin 🤖
    IRR

    thats helped a lot thank you so much!<BR>good luck today

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