Skip to main content

Posts

Showing posts from March, 2011

IRR

This is my first attempt at something that is directly subject related. Though the idea is basic maths (middle school maths to be specific), I have been having some torrid times trying to convince certain section of students about its simplicity and middle school origins. What is even more baffling is that these basic stuffs are offered as excuses for aversion to certain subjects. And my "Wtf?" moment comes when these ideas are identified as reasons why Financial Management is tough.
Internal Rate of Return Mathematically, it is the discount rate at which Net Present Value is equal to Zero. The aggregate of present value of cash inflows equals present value of investment cash outflows. Most of the investment cash flows take place at T-0 (Time Zero).
For beginners, Present Value (PV) is nothing but discounting of future cash flows to T-0 cash flow (Discounting = Inverse of Compounding).
Conceptually, it is the rate at which the project cash flows recovers the initial investment.…