Internal rate of return （IRR）
Internal rate of return （IRR） of an investment is the cost of capital at which its NPV would be exactly ZERO.
If a project has a zero NPV, this means the expected return of project meets the target return, or just compensate the required return of investor.
Decision rule:
If the IRR is greater than the cost of capital （target rate of return）, accept the project.
Method:
1. Calculate the net present value using the company’s cost of capital
2. Calculate the net present value using a second discount rate
3. Use the two NPV values to estimate the IRR using the following formula:
IRR=L+NL/（NL-NH）*（H - L）
L = Lower of the two rates of return used
H = Higher of the two rates of return used
NL = NPV using the lower rate
NH = NPV using the higher rate
Advantages:
1. sam as NPV
-It considers the time value of money
-It considers the whole life of project
-It is based on cash flow not hte profit
2. {ercentage is easier to understand, expecially for non-financial managers
Dis-advantages:
-It is not an absolute measure and can not reflect the size of project,
-It is complex to calculate
-non-conventional cash flow may give rise to multiple IRR
-The multually exclusive project cannot be ranked using IRR.A very small preject may yield a very high IRR-but a larger project that yields a lower IRR but a higher NPV.In this cse, NPV is the kind.
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