Advantages and disadvantages of financial internal rate of return, what is financial internal rate o

Financial internal rate of return.

It is a dynamic indicator that reflects the actual rate of return of the project, and under normal circumstances, the project is feasible when the financial internal rate of return is greater than or equal to the benchmark rate of return. The process of calculating the financial internal rate of return is the process of solving the unary nth order equation, and only the conventional cash flow can guarantee the equation.

There is a unique solution. The net cash flow of the project during the calculation period.

The discount rate when the present value is accumulated at zero.

It is the main dynamic evaluation index to examine the profitability of the project.

Advantages: The Financial Internal Rate of Return (FIRR) indicator takes into account the time value of the funds and the economic condition of the project over the entire calculation period, and not only reflects the degree of return of the investment process, but also the size of the FIRR is not affected by external parameters and depends entirely on the net cash flow series of the project's investment process. [1] Avoided like financial net present value.

It is difficult to determine the benchmark rate of return in advance, and only need to know the approximate range of the benchmark rate of return.

Disadvantages: The financial IRR is cumbersome to calculate, and for projects with unconventional cash flows, the financial IRR may not exist or have multiple IRRs in some cases.

The official website shall prevail.

Merit. The Financial Internal Rate of Return (FIRR) indicator takes into account the time value of the funds and the economic condition of the project over the entire calculation period, and not only reflects the degree of return of the investment process, but also the size of the FIRR is not affected by external parameters and depends entirely on the net cash flow series of the project's investment process. It avoids the dilemma of determining the benchmark rate of return in advance, as is the case with indicators such as financial net present value, and only needs to know the approximate range of the benchmark rate of return.

Shortcoming. The calculation of the financial IRR is cumbersome, and in some cases the IRR does not exist or has multiple IRRs for projects with unconventional cash flows.

The financial internal rate of return refers to the discount rate when the sum of the present values of the project's financial net cash flows in each year is equal to zero during the entire calculation period, that is, the discount rate when the financial net present value of the project is equal to zero.

It is the rate of return that an investment aspires to achieve, and the bigger the metric, the better. In general, the project is feasible when the internal rate of return is greater than or equal to the benchmark rate of return.

The sum of the discounted value of the annual cash flows of the investment project is the net present value of the project, and the discount rate when the net present value is zero is the internal rate of return of the project. In the economic evaluation of the project, the internal rate of return is divided into financial internal rate of return (FIRR) and economic internal rate of return (EIRR) according to different levels of analysis.

Extended Information: Calculation Steps:

1) On the basis of calculating the NPV, if the NPV is positive, the higher discount rate in this NPV calculation is used to calculate until the positive NPV is close to zero.

Internal rate of return.

2) Continue to increase the discount rate until a net present value is calculated to be negative. If the negative value is too large, the discount rate is lowered and then measured to a negative value close to zero.

3) According to the discount rate of the adjacent plus and minus two net present values close to zero, the internal rate of return is obtained by linear interpolation.

Advantages and disadvantages: The advantage of the internal rate of return method is that it can link the income of the project during its life to the total amount of investment, point out the rate of return of the project, and facilitate the comparison of it with the industry benchmark investment rate of return to determine whether the project is worth building.

When borrowing for construction, when the borrowing conditions (mainly the interest rate) are not very clear, the internal rate of return method can avoid the borrowing conditions and first obtain the internal rate of return as the upper limit of the acceptable borrowing interest rate.

However, the IRR is a ratio, not an absolute value, and a scheme with a lower IRR may have a larger NPV due to its larger scale, and therefore more worthy of construction. Therefore, the internal rate of return and the net present value must be considered in combination when selecting each option.

I understand that the financial internal rate of return is mainly used to do project investment analysis, and the value used in it is.

1. Refers to the discount rate of enterprises when the net present value = 0.

2. The total amount of investment = the discount rate at the net present value of the project.

Both methods can calculate the IRR, or Internal Rate of Return.

Summary. Hello, dear, here I found that the financial internal rate of return refers to the discount rate when the sum of the present value of the financial net cash flow of the project in each year is equal to zero during the entire calculation period, that is, the discount rate when the financial net present value of the project is equal to zero. The internal rate of return is the embedded rate of return, which is the discount rate when the total present value of the capital inflow is equal to the total present value of the capital flow and the net present value is equal to zero.

Without the use of an electronic computer, the internal rate of return is trialled using a number of discount rates until the discount rate at which the net present value is equal to or close to zero is found.

Hello, dear, the financial internal rate of return refers to the discount rate when the sum of the present value of the financial net cash flow of the project in each year is equal to zero during the entire calculation period, that is, the discount rate when the financial net present value of the project is equal to zero. The internal rate of return is the embedded rate of return, which is the discount rate when the total present value of the capital inflow is equal to the total present value of the capital flow and the net present value is equal to zero. Without the use of an electronic computer, the internal rate of return is calculated using a number of discount rates until the discount rate at which the net present value is equal to or close to zero is found.

What is the Financial Internal Rate of Return:

The financial internal rate of return is a dynamic indicator that reflects the actual rate of return of the project, and under normal circumstances, the project is feasible when the financial internal rate of return is greater than or equal to the benchmark rate of return. The calculation process of financial internal rate of return is the process of solving a one-dimensional n-order equation, and only conventional cash flow can ensure that the equation has a unique solution.

Merit. The Financial Internal Rate of Return (FIRR) indicator takes into account the time value of the funds and the economic condition of the project over the entire calculation period, and not only reflects the degree of return of the investment process, but also the size of the FIRR is not affected by external parameters and depends entirely on the net cash flow series of the project's investment process. It avoids the dilemma of determining the benchmark rate of return in advance, as is the case with indicators such as financial net present value, and only needs to know the approximate range of the benchmark rate of return in the book.

Shortcoming. For projects with unconventional cash flows, the financial internal rate of return may not even exist or there are multiple internal rates of return.