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How is Internal Rate of Return used to evaluate projects?

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Mizdee | Student, Undergraduate | Valedictorian

Posted April 23, 2013 at 8:58 PM via web

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How is Internal Rate of Return used to evaluate projects?

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sciencesolve | Teacher | (Level 3) Educator Emeritus

Posted April 27, 2013 at 4:40 PM (Answer #1)

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The internal rate of return can be used as a selection tool of an economically profitable investment, hence, the decision of accepting a project is based on the result of comparison between the internal rate of return and the capital cost of investment.

If the internal rate of return is less than the capital cost of investment, then the project is not worth the investment, but if the internal rate of return exceeds the cost of capital, then, the investment in the project is a success.

The internal rate of return can be calculate using an analogous formula to the one used to compute the net present value.

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