Respuesta :
According to the internal rate of return (IRR) criterion, a project or investment should be undertaken if its IRR is higher than the hurdle rate, which is the minimum required rate of return.
What is internal rate of return?
- According to the internal rate of return (IRR) criterion, a project or investment should be undertaken if its IRR is higher than the hurdle rate, which is the minimum required rate of return.
- The IRR Rule aids businesses in determining whether to move on with a project or not.
- If a project offers other, less obvious benefits, a corporation may not be required to strictly adhere to the IRR criterion.
The IRR rule essentially serves as a guideline for selecting whether to move forward with a project or investment. The more net cash a project creates for the company, the higher the expected IRR is and the more it exceeds the cost of capital.
In this instance, the project appears to be profitable, and management should move forward with it. The rule states that the optimal course of action is to abandon the project or investment if the IRR is higher than the cost of capital.
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