In this video on internal rate of return (irr), here we learn formula, example of irr along with significance and its drawbacks.
๐๐ก๐๐ญ ๐ข๐ฌ ๐๐ง๐ญ๐๐ซ๐ง๐๐ฅ ๐๐๐ญ๐ ๐จ๐ ๐๐๐ญ๐ฎ๐ซ๐ง (๐๐๐)?
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Internal return rate is the rate at which the net present value of the project is zero, the rate at which future cash flows are adjusted to calculate the present value.
๐๐ง๐ญ๐๐ซ๐ง๐๐ฅ ๐๐๐ญ๐ ๐จ๐ ๐๐๐ญ๐ฎ๐ซ๐ง (๐๐๐) ๐
๐จ๐ซ๐ฆ๐ฎ๐ฅ๐
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NPV= 0= CF0 + CF1/(1+IRR)^1 + CF2/(1+IRR)^2 + โฆ..
CFn/(1+IRR)^n
๐๐ญ๐๐ฉ๐ฌ ๐ญ๐จ ๐๐๐ฅ๐๐ฎ๐ฅ๐๐ญ๐ ๐๐๐ ๐ข๐ง ๐๐ฑ๐๐๐ฅ
โโโโโโโโโโโโโโโโโโ
#1 โ Calculate Cash inflows and outflows in a standard format.
#2 โ Use the IRR formula in Excel
#3 โ Compare IRR to Discount Rate
๐๐ง๐ญ๐๐ซ๐ง๐๐ฅ ๐๐๐ญ๐ ๐จ๐ ๐๐๐ญ๐ฎ๐ซ๐ง (๐๐๐) ๐๐ข๐ ๐ง๐ข๐๐ข๐๐๐ง๐๐
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The IRR of any project shall be estimated taking into account the following three assumptions:
1- The investments made are kept until the maturity dates.
2 โ The intermediate cash flows will reinvest itself in IRR.
3 โ By nature all cash flows are periodic, or the time gaps between various cash flows are equal.
To know more about ๐๐ง๐ญ๐๐ซ๐ง๐๐ฅ ๐๐๐ญ๐ ๐จ๐ ๐๐๐ญ๐ฎ๐ซ๐ง (๐๐๐), you can go to this ๐ฅ๐ข๐ง๐ค ๐ก๐๐ซ๐:- https://www.wallstreetmojo.com/internal-rate-of-return-irr/
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