Importance of Internal Rate of Return

The internal rate of return is basically the cash inflow that comes in the company as a result of company investment (Kenneth and Willinger, 2009). Basically the internal rate of return is the interest rate that occurs when the net amount in cash form related to the investment equal to zero. This is represented as IRR, and companies use this to find out the feasibility of a project while making an investment, this make it easy for the manager to calculate the profitability on their investment (Catherine, 2011). The internal rate of return is basically the cash inflow that comes in the company as a result of company investment (Kenneth and Willinger, 2009). Basically the internal rate of return is the interest rate that occurs when the net amount in cash form related to the investment equal to zero. This is represented as IRR, and companies use this to find out the feasibility of a project while making an investment, this make it easy for the manager to calculate the profitability on their investment (Catherine, 2011). The basic fundamental use of IRR is to understand the financial sense in advance for a company. If the IRR exceeds the cost of company’s cost of capital then the project will be feasible for company otherwise (if IRR is less than the cost of capital) the investment is useless and company may bear lose. The internal rate of return is the interest rate that makes the net present value zero (Agnes, et al., 2010). . If the IRR exceeds the cost of company’s cost of capital then the project will be feasible for company otherwise (if IRR is less than the cost of capital) the investment is useless and company may bear lose. The internal rate of return is the interest rate that makes the net present value zero (Agnes, et al., 2010).

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