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IRR

Discount rate that makes NPV of all cash flows equal to zero.

For mutually exclusive projects, NPV and IRR can give conflicting rankings. NPV is a better measure in such cases.

 

 

Q: If I have to invest today $2,000 for a project which gives me $100 next year, $200 the next, and $250 after that till perpetuity, should I make this investment?
Cost of Capital = 10%.

Answer:

Value of Perpetuity

(At Y2) = 250/0.1 = 2,500

 





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