Chapter 9. Internal Rate of Return

Questions answered in this chapter:

  • How can I find the IRR of cash flows?

  • Does a project always have a unique IRR?

  • Are there conditions that guarantee a project will have a unique IRR?

  • If two projects each have a single IRR, how do I use the projects’ IRRs?

  • How can I find the IRR of irregularly spaced cash flows?

  • What is the MIRR and how do I compute it?

The net present value (NPV) of a sequence of cash flows depends on the interest rate (r) used. For example, if you consider cash flows for Projects 1 and 2 (see the worksheet IRR in the file IRR.xlsx, shown in Figure 9-1), you find that for r=0.2, Project 2 has a larger NPV, and for r=0.01, Project 1 has a larger NPV. When you use NPV to rank investments, the outcome ...

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