IRR Decision Rules
The project is accepted if IRR is greater than desired rate
of return otherwise project is rejected. IRR may be deemed as an expected rate of return from the project and
therefore if expected return of the project is more than desired return then
project is accepted.
IRR Decision Rules
tabular Explanation
|
IRR
> Desired Rate
|
Project is accepted
|
|
IRR
< Desired Rate
|
Project is rejected
|
IRR Decision Rule
acceptance Example
ABC has started a project and the internal rate of return for
the project is 16%, while company desired rate of return from the project is
19%. Project must be rejected because project will not provide the desired rate
of return.
IRR Decision Rule Rejection
Example
ABC wants to establish a new company and desired return from
the project is 8% while rate of return is calculate is 9%. Project will be
accepted because the desired rate is lower than accepted rate (IRR).
