Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 9QTD
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Mathematically, how can we determine the
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Step 1
IRR
It is the capital budgeting technique of discounted cash flow which gives a rate of return being earned by a project. It is a rate in which the initial investment and the discounted cash inflows equal to 0.
To compute IRR, generally, it relies on the method of trial and error method as no analytical method can be used.
The rate is considered as an ideal rate at which both the investment cost is equal to the PV of future cash flow.
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