E when irr r finding a projects irr by solving for npv

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Unformatted text preview: for an investment project lasting T years by solving: (24) NPV Co  C1 C2 CT  " 2 1  IRR 1  IRR 1  IRR T 0 The IRR investment rule accepts projects if the project's IRR exceeds the opportunity cost of capital, i.e. when IRR > r. Finding a project's IRR by solving for NPV equal to zero can be done using a financial calculator, spreadsheet or trial and error calculation by hand. Mathematically, the IRR investment rule is equivalent to the NPV investment rule. Despite this the IRR investment rule faces a number of pitfalls when applied to projects with special cash flow characteristics. Download free ebooks at bookboon.com 25 Corporate Finance 1. 2. 3. 4. The net present value investment rule Lending or borrowing? - With certain cash flows the NPV of the project increases if the discount rate increases. This is contrary to the normal relationship between NPV and discount rates Multiple rates of return - Certain cash flows can generate NPV=0 at multiple discount rates. This will happen when the cash flow s...
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