Internal rate of return is defined as the rate at which cash flows are recovered so the Finance Guru is back with yet another informative video that will solve all your queries about things that should be keep in mind.Today’s topic of discussion ‘Internal Rate of Return’
Ladies and gentlemen boys and girls your friend finance guru vishal tucker is back again with one of the most critical methods of project evaluation which one it is called i our our or internal rate of return internal rate of return is technically defined as the rate at which project breaks even or the rate at which the project cash flows are recovered or the rate
At which npv is equal to zero that’s exactly a no profit no loss point where your present value of cash outflow is exactly equal to your present value of cash inflows so basically in simple terms you can say that it is the rate of return of the project or it is the rate of return on your initial investment if you go under the hood you can also say that this money
Which you earn over project lifecycle is nothing but the unrecovered investment balance of the project now every project depending upon the pattern of cash flow will have one ira because at every cash flow you can generate different irs the point here is that an irr is nothing but a significant rate which tells us that whether we should do this project or not how
Because if management’s cutoff rate is higher then the irr of the project then the management may not like to go ahead with the project but if the irr is higher than the cutoff rate suggested by the management then they may want to go for this project now the cutoff rate as discussed in earlier videos is nothing but a combination of your weighted average cost of
Capital and the risk premium attached to it having said that friends irr is a very important factor in many many industries in insurance companies in housing loans in car loans in projects in infrastructure projects irr of every project is very very relevant for decision making purposes however there are many other aspects of a project which besides a go/no-go of
A project other than ir ir are stand alone is not sacrosanct but irr is one of the most significant influencers of decision-making in project finance more on irr in a video called npv versus irr please understand friends these project evaluation techniques by themselves are very easy to understand but the real flavor comes only when you are able to compare the
Two and identify how to use the combination of two for evaluating a particular project so for more project evaluation techniques credit rating basics of finance and learning finance in a fun way don’t forget to subscribe to our channel finance to income statement income statement which was erstwhile popularly known as profit and loss account
Transcribed from video
What Is Internal Rate Of Return? | Vishal Thakkar By Finance Tube