Explain how the IRR works and how this is used to help evaluation a potential project....

Explain how the IRR works and how this is used to help evaluation a potential project. What is the conclusion when the IRR is below the cost of capital of a project? What about when it is greater than the cost of capital? In what way is the MIRR more accurate than the IRR in evaluating a project?

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Expert Solution

Irr is the rate at which Nov is zero. It's calculated by putting npv equal to zero. If irr is greater than cost of capital , the project is accepted and if irr is less than cost of capital , project is rejected .

Mirr is better than irr because it considers than reinvestment if cashflow takes place at cost of capital which is more realiarea assumption, whereas irr assumes reinvestment of cashflows takes place at irr , which is not possible to achieve during all years of project.

jeff jeffy answered 1 year ago

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