Internal Rate of Return:
Internal rate of return is much advance technique of capital budgeting and it is based on time value of money. Similar to NPV and P.I., we also compute the present value of cash inflows and cash outflows in this technique. However this technique is purely distinct from NPV and PI. Before understanding this technique of assessment of investment projects, you must know what internal rate of return is.
Statement of Internal Rate of Return:
Internal rate of return is the rate at which the present value of each and every cash inflows is equivalent to the present value of all cash outflows. Subsequent to finding internal rate of return, we will admit that investment project whose internal rate will very high or when there is only one project, then we will compare it with the minimum rate of return. When internal rate of return is more than cut off or minimum rate, then we will admit that single project.
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