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Internal rate or return, Net present value, Present Value, Furture Value

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Internal rate or return, Net present value, Present Value, Furture Value

Category: Research Paper

Subcategory: Finance

Level: College

Pages: 3

Words: 825

Internal Rate of Return, Net Present Value, Present Value, and Future Value
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Internal Rate of Return, Net Present Value, Present Value, and Future Value
Internal Rate of Return (IRR)
The internal rate of return (IRR) is a measure used by organizations to determine the investment returns of a project. IRR is the discount rate that guarantees a net present value of zero for investment. Managers compare the internal rate of return of investment with the minimum required a rate of return to determine the viability of an investment. Projects and investments that indicate a positive IRR are considered viable. Additionally, while comparing the profitability and the viability of many investment opportunities, organizations choose the project with the highest IRR (Rohrich, 2007). Therefore, internal rate of return can be used to determine the viability of a project as well as compare several projects to determine the best course of action for an organization.
The projected return on investment takes into account the value for money over time. IRR provides the expected return over a specific time, which makes it essential for short and long term planning (Rohrich, 2007). However, several IRR can exist for a single investment, thus making it difficult to analyze the cash flows. The use of IRR to determine the investment viability of a project is less effective than the use of Net present value (NPV) comparatively. For instance, in the case of multiple investme…

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