INTERNAL RATE OF RETURN (IRR)

1. IRR is the internal rate of return.

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IRR is the discount rate that makes NPV=0 of the project.

IRR is the average rate of return of a project over its life adjusted for time value of money and risk of the project.

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4. IRR is the rate of return of a project in isolation, independent of other projects/businesses a company may own. IRR is the rate of return of a project on a stand-alone basis. IRR is the rate of (free) cash inflow of a project.

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7. IRR depends on market conditions and on asset management decisions. 8. IRR is the result of asset management decisions. 9. IRR is on the asset side of the balance sheet. 10. IRR is independent of how a project is financed.

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11. IRR is independent of who owns a project. 12. IRR is the maximum rate for WACC. 13. IRR is the ceiling for WACC. 14. If IRR>WACC, NPV>0 If IRR=WACC, NPV=0 If IRR<WACC, NPV<0

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15. WACC is the result of financial structure decisions. 16. WACC is dependent on the IRR of a project. 17. WACC is on the finance side of the balance sheet. 18. IRR assumes reinvestment at IRR.