If both are greater than the cost of capital, we will choose the one that shows a higher IRR and/or Net Present Value ( NPV) than the other. Using the IRR function, we can estimate the IRRs for both scenarios and check which one is higher than the weighted average cost of capital ( WACC) of the business (also known as a hurdle rate ). One example is when a company is presented with two opportunities: one is investing in a new factory and the second is expanding its existing factory. It is frequently used by businesses to compare and decide between capital projects. The function is very helpful in financial modeling, as it helps calculate the rate of return an investment would earn based on a series of cash flows. IRR will return the Internal Rate of Return for a given cash flow, that is, the initial investment value and a series of net income values. The IRR Function is categorized under Excel Financial functions.
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