Complete information regarding IRR internal rate of return.

1. IRR (Internal Rate of Return).
Cost Of Capital.
Presented By : Mayank
Khandelwal
CR. : 3rd Rno. : 30

2. The discount rate often used in capital
budgeting that makes the net present
value of all cash flows from a particular
project equal to zero. Generally speaking,
the higher a project's internal rate of return,
the more desirable it is to undertake the
project.

3. The IRR method can, at times, give you
conflicting answers when compared to
NPV for mutually exclusive projects. The
"multiple IRR problem" can also be an
issue, as discussed below.

4.  The term cost of capital refers to the minimum rate
of return a firm must earn on its investments.
 “Cost of Capital is the minimum required rate of
earnings or the cut-off rate of
capital expenditure”
K=ro+b+f
Where, k=cost of capital;
ro= return at zero risk level:
b = premium for business risk, which refers to the variability
in operating profit (EBIT) due to change in sales.
f = premium for financial risk which is related to the pattern
of capital structure.

5.  Conceptual controversy regarding the relationship
between cost of capital and capital structure is a big
problem.
 Controversy regarding the relevance or otherwise of
historic costs pr future costs in decision making process.
 Controversy regarding the relevance or otherwise of
historic costs pr future costs in decision making process.