Why is a high IRR good?
The higher the IRR on a project, and the greater the amount by which it exceeds the cost of capital, the higher the net cash flows to the company. A company may also prefer a larger project with a lower IRR to a much smaller project with a higher IRR because of the higher cash…
The higher the IRR on a project, and the greater the amount by which it exceeds the cost of capital, the higher the net cash flows to the company. A company may also prefer a larger project with a lower IRR to a much smaller project with a higher IRR because of the higher cash flows generated by the larger project.Click to see full answer. Herein, what does a high IRR indicate?If by IRR you mean internal rate of return, the higher the better. A higher IRR implies a higher profit percent after taking into account the present value of the project (money earned today is more valuable than that earned tomorrow)Also Know, does higher IRR mean higher NPV? Despite both having the same initial investment, NPV is higher for Project B while IRR is higher for Project B. This is because in case of Project A more cash flows are in Year 1 resulting in longer reinvestment periods at higher reinvestment assumption and hence higher IRR. Similarly, what is an acceptable IRR? Typically expressed in a percent range (i.e. 12%-15%), the IRR is the annualized rate of earnings on an investment. A less shrewd investor would be satisfied by following the general rule of thumb that the higher the IRR, the higher the return; the lower the IRR the lower the risk.Which is better NPV or IRR and why?NPV also has an advantage over IRR when a project has non-normal cash flows. Non-normal cash flows exist if there is a large cash outflow during or at the end of the project. In conclusion, NPV is a better method for evaluating mutually exclusive projects than the IRR method.
