How Do You Use The IRR Method To Assess A Complex Project?
The internal rate of return (IRR) method finds the internal rate of return of a project without using a discount rate or other external information. This article demonstrates how to use the internal rate of return (IRR) method to evaluate whether to accept or deny complex projects. Information from the following simple problem is used. The demonstrated technique is valid for investments with multiple cash flows. The Qwerty company manager is evaluating a project. The project has an initial investment cost of $400,000. The project cash flows for the next 4 years are forecast as follows: Year 0 = -$400,000 (investment cost) Year 1 = $70,000 Year 2 = $150,000 Year 3 = $200,000 Year 4 = $215,000 What is the internal rate of return (IRR) of the project? Should the company accept or reject the project? Gather the information needed. Year 0 = -$400,000 (investment cost) Year 1 = $70,000 Year 2 = $150,000 Year 3 = $200,000 Year 4 = $215,000 The formula to find the IRR of these cash flows would
