Internal Rate of Return

Now what about this question: Given that the future flows are forecasted, as they were in the exa the discount factor that makes the NPV exactly $0? We are interested in that factor, which we w return), because any discount factor that might be imposed by the controller that is higher than t negative and the project would not be approved.

IRR = Discount rate for which NPV = 0

We cannot solve for the IRR directly. The IRR can only be solved iteratively. For instance, for the present value factor tables, we find that at a discount of 24%, the NPV is slightly negative. At 23% meaning the IRR is between 23 and 24%. IRR can be solved in Excel® using the IRR function th exact solution is 23.598%.

In some companies, the IRR is called the "hurdle rate." No project can be approved with a discc is the upper bound of the discount factor for a positive NPV.

Decision policy: The project is acceptable if k < IRR.

When k = IRR, the project is usually not accepted.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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