Need help with Financial Management 1

timer Asked: Nov 30th, 2015
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Question Description

Why is the internal rate of return important to an organization?       

Tutor Answer

School: UC Berkeley

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Organizations utilize an assortment of financial information and examination tools to settle on working and venture choices. One of those devices is inward rate of return, abbreviated as IRR. The IRR measures how a capital expenditure, a project or an investment performs after some time. The inward rate of return has numerous uses. It offers organizations some assistance with comparing one speculation to another or determining whether or not a specific undertaking is feasible.

Organizations use IRR to determine whether a project, an investment, or expenditure was advantageous. Ascertaining the IRR will show if an organization profited from an investment. The IRR makes it simple to quantify the profitability of an investment and to contrast one venture's benefit with another.

In the event that the IRR is superior to anything normal or surpasses an organization's expense of capital, then the organization should put resources into the task. When picking between numerous investment, a company should pick the investment with a big IRR, expecting all surpass the expense of capital, which is a blend of the expense of an organization's long-term debt, favored stock and shareholder's value.

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