can irr of a project be greater than information rate ? why why not

Expert Solution

Answer : IRR of a project means that the rate of return earned by the investor in doing his business. If the IRR of the project is greater than rate of return from the investing in other projects or cost of capital of investing in the project than the project is feasible.

Information rate is the rate which the person can earned in investing in the project. It is the rate at which the investor can earned in investing in another projects or oppournities.

It may depend upon the situation where there is greater IRR than information rate where the project is accepted and provides higher returns to the investor. As the project is feasible as the IRR is greater than information rate it means that NPV=0 . It does not considered market rate of return into an account. IRR is greater than the project should be accepted and in this situation the investor is earning more profit in the project.

When IRR is less than information rate it means

Project is infeasible

NPVis not equal to zero.

Rahul Sunny answered 1 year ago

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