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Unformatted text preview: o No major theoretical flaws o Requires a hurdle rate decision o Cash flows assumed to come at year-end o Dependent upon accurately forecasting C/F • Conclusion Best way to measure the value of investments 4. Internal rate of return • Definition The discount rate that makes an investment’s NPV = Zero • Problems o May result in multiple answers o May yield wrong decision for mutually exclusive investments • Popular because… o Does not require calculation of hurdle rate o People prefer talking about rates...
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