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# Do you see any reason that the IRR should still be in use today since.docx

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# Do you see any reason that the IRR should still be in use today since.docx

Do you see any reason that the IRR should still be in use today since the NPV is more accurate? Please write out one to two paragraphs explain why. Thank you
Solution
The Internal Rate of Return(IRR) is usually the rate of return that a project earns. IRR is the discount rate that equates the aggregate present value of the net cash inflows with the aggregate present value of cash outflows of a project. In other words, it is that rate which gives the project NPV of zero.
The IRR method is a theoretically correct technique to evaluate capital expenditure decisions. It has the advantages which are offerred by the NPV criterion such as a) it considers the time value of money and b) it takes into account total cash inflows and outflows.
In addition, it is easier to understand. People understand the concept of IRR much more readily than they understand the concept of NPV. For example , business people are more likely to understand the concept of the IRR when it is linked to the concept of k, the cost of capital. Also, a required rate of return is a prerequisite for computing the NPV. The discount rate used in NPV calculations is a result of a number of assumptions which may or may not be realistic. On the other hand, a discount rate is not a prerequisite for computing the IRR. It does not use the concept of the required rate of return or cost of capital.It itself provides a rate of return which is indicative of the profitability of the proposal.
Finally, the IRR is consistent with the overall objective of maximizing stockholder wealth.
.

Do you see any reason that the IRR should still be in use today since the NPV is more accurate? Please write out one to two paragraphs explain why. Thank you
Solution
The Internal Rate of Return(IRR) is usually the rate of return that a project earns. IRR is the discount rate that equates the aggregate present value of the net cash inflows with the aggregate present value of cash outflows of a project. In other words, it is that rate which gives the project NPV of zero.
The IRR method is a theoretically correct technique to evaluate capital expenditure decisions. It has the advantages which are offerred by the NPV criterion such as a) it considers the time value of money and b) it takes into account total cash inflows and outflows.
In addition, it is easier to understand. People understand the concept of IRR much more readily than they understand the concept of NPV. For example , business people are more likely to understand the concept of the IRR when it is linked to the concept of k, the cost of capital. Also, a required rate of return is a prerequisite for computing the NPV. The discount rate used in NPV calculations is a result of a number of assumptions which may or may not be realistic. On the other hand, a discount rate is not a prerequisite for computing the IRR. It does not use the concept of the required rate of return or cost of capital.It itself provides a rate of return which is indicative of the profitability of the proposal.
Finally, the IRR is consistent with the overall objective of maximizing stockholder wealth.
.

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### Do you see any reason that the IRR should still be in use today since.docx

1. 1. Do you see any reason that the IRR should still be in use today since the NPV is more accurate? Please write out one to two paragraphs explain why. Thank you Solution The Internal Rate of Return(IRR) is usually the rate of return that a project earns. IRR is the discount rate that equates the aggregate present value of the net cash inflows with the aggregate present value of cash outflows of a project. In other words, it is that rate which gives the project NPV of zero. The IRR method is a theoretically correct technique to evaluate capital expenditure decisions. It has the advantages which are offerred by the NPV criterion such as a) it considers the time value of money and b) it takes into account total cash inflows and outflows. In addition, it is easier to understand. People understand the concept of IRR much more readily than they understand the concept of NPV. For example , business people are more likely to understand the concept of the IRR when it is linked to the concept of k, the cost of capital. Also, a required rate of return is a prerequisite for computing the NPV. The discount rate used in NPV calculations is a result of a number of assumptions which may or may not be realistic. On the other hand, a discount rate is not a prerequisite for computing the IRR. It does not use the concept of the required rate of return or cost of capital.It itself provides a rate of return which is indicative of the profitability of the proposal. Finally, the IRR is consistent with the overall objective of maximizing stockholder wealth.