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+--- Thread: internal financial rate of return (/showthread.php?tid=5998)
internal financial rate of return - muhammadsajidamin - 06-18-2009
plaz
any one guide me how to calculate it.
thx.
sajid
- Odyssee - 06-19-2009
perhaps the article on the following link might be of your help
http//www.accaglobal.com/pubs/students/publications/student_accountant/archive/sa_apr08_coulthurstIRR.pdf
For information on Modified Internal Rate of Return (MIRR) pls visit
http//www.accaglobal.com/pubs/students/publications/student_accountant/archive/sa_apr08_ryan_revised.pdf
- faisal_desperado - 06-19-2009
Dear muhammadsajidamin,
Before calculating Internal Rate of Return (IRR), one must have sufficient knowledge about the following concepts,
Annuity and its Present Value, PV,
Understanding of compound interest / simple interest and its calculation.
Concept of Net present value.
If you have sound knowledge with regards to the above terms then IRR's calculation will be very easy for you, please reply to the above and provide imaginary data to calculate IRR.
Best Regards,
- Astute Accountant - 07-02-2009
<b>The internal rate of return (or IRR)</b> is a common financial valuation metric used by financial analysts to calculate and assess the financial attractiveness / viability of capital intensive projects or investments.
As the IRR is normally easier to understand than the result of a discounted cash flow (DCF) analysis (i.e. the net present value or NPV) for non-financial executives, it is often used to explain and justify investment decisions, although a good financial modeler should know that the IRR is after all an estimated value, especially when calculated in Excel, and should be used in conjunction with other financial metrics such as the NPV and comparable valuation multiples when presenting a business or investment case.
So what exactly is the IRR? The IRR is the interest rate that makes the net present value of all cash flow equal to zero. In financial analysis terms, the IRR can be defined a discount rate at which the present value of a series of investments is equal to the present value of the returns on those investments.
All projects or investments with an IRR that has been calculated in a financial modeling exercise to be greater than the Weighted Average Cost of Capital (or WACC) should technically be considered as financially viable and accepted.
When choosing between projects or investments whose outcomes or performance are absolutely independent of one another, a good financial modeler should deem the project or investment with the highest calculated IRR to be the most financially attractive, so long as we continue to keep in mind that the IRR value also needs to be higher than the WACC.
<b>Calculation</b>
Calculation of IRR is best explained at
http//en.wikipedia.org/wiki/Internal_rate_of_return