Q3 Is this project acceptable Internal rate of return IRR Definition IRR is the

# Q3 is this project acceptable internal rate of return

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Q3. Is this project acceptable?
0. NPV: Enter r, solve for NPV. IRR: Enter NPV = 0, solve for IRR.
22 Coca Cola Example: IRR
23 Computing IRR For The Project If you do not have a financial calculator, then this becomes a trial and error process Calculator Enter the cash flows as you did with NPV Press IRR If IRR > 10%, required return, then accept the project. Should we accept or reject the new JV?
24 Rationale for the IRR Method If IRR > WACC, then the project’s rate of return is greater than its cost-- some return is left over to boost stockholders’ returns. Example : WACC = 10%, IRR = 22.87%. Profitable.
25 Q3. Is this project acceptable?
Q4: What are the relationships among NPV, IRR, and PI?

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• Fall '08
• Olander

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