Share
Explore BrainMass

"internal rate of return"

1. What is meant by a company's "internal rate of return" and why is it important to use as a metric? What do some of the websites ( i.e. Zenwealth, Investopedia and Wikipedia) say about IRR?

2. What are the strengths and weaknesses of the payback method of ranking project proposals as compared to other methods? What method of comparing investment proposals do you favor and why?

3. The Treasurer of a global Fortune 1000 company is considering investing $50 million in 10 year U.S. Treasury Notes that yield 3.5%. The company's WACC is 6.0%.

Is this a good decision to make an investment that is less than the company's WACC (essentially a negative NPV project)? Explain.

What should the ROI or target yield be on investments for a company with a 6.0% WACC? Explain.

Solution Preview

1. What is meant by a company's "internal rate of return" and why is it important to use as a metric? What do some of the websites (i.e. Zenwealth, Investopedia and Wikipedia) say about IRR?

A company's IRR is the minimum return that a company would like to earn on its investment on a project as it is the opportunity cost or minimum return that the company can earn on alternative investments. Hence, this is the minimum acceptable return to accept a project.

Some of the websites like Wikipedia says that IRR is very effective tool to evaluate capital budgeting projects because it utilizes the time value of money concept and ...

Solution Summary

What is meant by a company's "internal rate of return" and why is it important to use as a metric? What do some of the websites ( i.e. Zenwealth, Investopedia and Wikipedia) say about IRR?

$2.19