Corality Academy: Corality Financial Modelling Campus Alternatively, a tariff could be adjusted in order to provide a minimum IRR threshold for the concessionaire. This could be done during the bidding process based on the expected IRR. IRR is commonly used in optimising the toll/tariff regime in project finance transactions, such as in public, private partnerships (PPP) schemes. ![]() ![]() In addition, IRR neglects the size of the project, and assumes that cash flows are reinvested at a constant rate. You should be aware of the limitation of the IRR, such as a project with multiple IRRs or no IRR. Theoretically, a simple decision making benchmark could be set to accept a project if the IRR exceeds the cost of capital, and rejected if this IRR is less than the cost of capital. IRR is a metric to decide whether a single project is worth investing in. Common Applications of IRR Capital budgeting: Investment decision tool We could double check the calculation by feeding the IRR back into the NPV calculation as a discount rate, for which NPV equals zero. XIRR() is an added-in function in Excel and the syntax is: XIRR(CFi, dates)Īs demonstrated in screenshot 5, the calculated IRR is 17.53%. It returns the internal rate of return for a schedule of cash flows that is not necessarily periodic. The more robust function would be XIRR().
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