How Do You Use The IRR Method To Assess Financing Projects?
The internal rate of return (IRR) method is used to assess projects for capital budgeting decisions. While the general technique in obtaining the IRR does not vary, how the IRR value obtained should be understood varies depending on the kind of project being evaluated. Financing projects require a different interpretation of the IRR value than investment project. This article demonstrates through example how to use the IRR technique in assessing financial projects. Information from the following problem is used. Qwerty company is considering a finance project with the following cash flows: ($100,000, -$20,500, -$20,500, -$20,500, -$20,500, -$20,500) What is the project’s IRR? Should the company accept the project? Gather the information needed to find the IRR value. Year 0 = $100,000 Year 1 = -$20,500 Year 2 = -$20,500 Year 3 = -$20,500 Year 4 = -$20,500 Year 5 = -$20,500 Plug the information into a spreadsheet to find the IRR. A link below to the primary IRR article gives detailed ste
