2012•Unpublished venueRequires access
The Internal Rate of Return
Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi
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Abstract
An investment is worth making when its internal rate of return is equal to or greater than the investors required return. An investment is not worth making when its internal rate of return is below the investors required return. It is necessary to consider how internal rate of return (IRR) can be used through net present value. It is also important to investigate whether or not these two criteria could somehow produce contradictory conclusions. It is found that if it is a simple matter of whether or not to buy into a given investment or whether or not to invest in a project, the two criteria produce exactly the same result. It is found that if the cash flow schedule is the same, then calculating the NPV by choosing the discounting rate and calculating the internal rate of return are two sides of the same mathematical coin.