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Could anyone plz tell me that how to relate IRR with the Capital investment? |
After calculating IRR from a project how can we compared it to with the organisation's cost of capital and will accept it if the IRR was greater. Let suppose I have got IRR 7.43 and capital investement is 1000,000 then what I will do with it that I accept the project. The IRR is the rate with which the PV of all cash inflows and outflows equals zero. If you make a 100K investment today, the PV of that amount is -100k. then your cashflows from the project discounted back to today, including salvage value will equal +100k when using the 7.43% discount rate. If your cost of capital is less than the IRR, you should do the investment in theory. It also allows you to compare various projects, where you will pick those that have the highest IRR. Yes If the internal Rate of Return is Positive you should accept the project. However the IRR that you have mentioned does not seem to be correct.Check it again |
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