Question

The topic is: internal rate of return is used to make investment decisions :

1.explain why you believe the topic is important.

2.Explain the calculations or concepts, and how it can be used in decision-making.

3.Assuming your audience knows nothing about the topic, explain how to apply it:

1. As an entry-level professional.
2. As a mid-level professional.
3. As an executive-level professional.

Ethics: Identify 1 ethical issue related to this topic and explain how you would address it.

Answer 1

The Concept of IRR deals with the concept of time value of money so it has become utmost important for decision making process.

IRR is the actual rate of return or we can say fair rate of return which is calculated keeping time as an important factor.

Basically there are 2 methods linked with calculation of IRR .

1) interpolation method

2) formula Method

Interpolation Method =x-x1/x2-x1 = y-y1/y2-y1 where x is rate of interest and y denotes net present value.

Formula method = lower rate + lower rate npv/lower rate npv- higher rate npv * (higher rate- lower rate).

net Present value = present value of cash inflows - present value of cash outflows(keeping time value of money in use)

All investors have their own expected rate of return on securities & project while irr calculates the actual rate of return this helps the investor to differentiate between various investment projects according to his/her desired return.

This is how we use IRR

Thanks