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Corporate Finance Project

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A) Would the projects that have a higher IRR pose greater risk over time? How does the IRR play a role in the risk assessment of a particular project?

B)With respect to those projects with higher individual IRR's, how does this impact the outcome of their financing decisions? What is the relationship of risk associated with a higher IRR? How does this relationship reflect the 'Risk-Return Trade-Off' principle ?

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This expert examines corporate finance projects.

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A) Projects with a higher IRR due indeed pose greater risk over time. The IRR, Internal Rate of Return, is a way to measure return. It is a time-adjusted measure (discounted cash flows) expressed as a percentage of the initial investment that is expected to come back in the form of profits. For example, Project A might have a 5% IRR while Project B has a 8% IRR. However, Project B has a larger spread in the possible outcomes ...

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Robert Reinhart, MBA
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  • MBA, Merage School of Business, Univ of Cal, Irvine
  • BA, Univ of Cal, Irvine
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