## 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 ExcelÂ® 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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