Business, Legal & Accounting Glossary
The rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity; in other words, the rate of return at which the net present value of the project is zero. If the internal rate of return exceeds the cost of financing the project, then the project is viable. The internal rate of return is also useful in ranking competing investment projects (the higher the internal rate of return, the better the project is), but there are some limitations with this technique.
First, if cash flows change from negative or positive, or vice versa, a unique internal rate of return cannot be calculated, Second, in the case that competing projects are being considered, the internal rate of return criteria sometimes gives a different ranking than the net present value criteria. Thus, net present value is usually preferred over the internal rate of return, since net present value is a specific number and is usually easier to calculate. also called dollar-weighted rate of return.
You should try to accurately predict what the dollar-weighted rate of return will be so you know if you should pursue.
Kent saw that the dollar-weighted rate of return was in his favor and he was enjoying the very hard-won fruits of his cash flow.
In order to proceed with the project, they needed to calculate the dollar-weighted rate of return to make sure they were receiving the proper return on investment.
Internal Rate of Return
IRR
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This glossary post was last updated: 30th October, 2021 | 0 Views.