The outflows are the cash generated by the

**project**. The**IRR**is the**internal rate of return**of these cash flows. The calculation assumes that no debt is used for the**project**.**Equity IRR**assumes that you use debt for the**project**, so the inflows are the cash flows required minus any debt that was raised for the**project**.Keeping this in consideration, what is FCFE used for?

Free cash flow to equity (

**FCFE**) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid.**FCFE**is a measure of equity capital usage.1

## What does a high IRR mean?

Internal rate of return (

**IRR**) is a metric used in capital budgeting to estimate the profitability of potential investments. Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.**IRR**calculations rely on the same formula as NPV**does**.2

## Is a high or low IRR better?

The

**higher**the**IRR**on a project and the**greater**the amount by which it exceeds the cost of capital, the**higher**the net cash flows to the investor. A company may also prefer a larger project with a**lower IRR**to a much**smaller**project with a**higher IRR**because of the**higher**cash flows generated by the larger project.3

## What is NPV and IRR methods?

The

**IRR**, or internal rate of return, is defined as the discount rate that makes**NPV**= 0. Like the**NPV**process, it starts by identifying all cash inflows and outflows. However, instead of relying on external data (i.e. a discount rate), the**IRR**is purely a function of the inflows and outflows of that project.4

## What is a good internal rate of return?

Using

**IRR**, Company XYZ can determine whether the equipment purchase is a better use of its cash than its other investment options, which should return about 10%. The investment's**IRR**is 24.31%, which is the**rate**that makes the present value of the investment's cash flows equal to zero.5

## Can you have a negative internal rate of return?

**Negative IRR**indicates that the sum of post-investment cash flows is less than the initial investment; i.e. the non-discounted cash flows add up to a value which is less than the investment. However, note that a

**negative**NPV doesn't always mean a

**negative IRR**.

6

## What do you mean by pay back period?

**Payback period**in capital budgeting refers to the

**period**of time required to recoup the funds expended in an investment, or to reach the break-even point. For example, a $1000 investment made at the start of year 1 which returned $500 at the end of year 1 and year 2 respectively

**would**have a two-year

**payback period**.

7

## What is the IRR function in Excel?

The Microsoft

**Excel IRR function**returns the**internal rate of return**for a series of cash flows. The cash flows must occur at regular intervals, but do not have to be the same amounts for each interval. The**IRR function**is a built-in**function in Excel**that is categorized as a Financial**Function**.8

## What is the rate of return?

A

**rate of return**is the gain or loss on an investment over a specified time period, expressed as a percentage of the investment's cost. Gains on investments are defined as income received plus any capital gains realized on the sale of the investment.9

## How do you calculate return on investment?

**Return on investment**, or ROI, is the ratio of a profit or loss made in a fiscal year expressed in terms of an

**investment**and shown as a percentage of increase or decrease in the value of the

**investment**during the year in question. The basic formula for ROI is: ROI = Net Profit / Total

**Investment*** 100.

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## What is the difference between WACC and IRR?

It is used by companies to compare and decide

**between**capital projects. The primary**difference between WACC and IRR**is that where**WACC**is the expected average future costs of funds (from both debt and equity sources),**IRR**is an investment analysis technique used by companies to decide if a project should be undertaken.11

## What is a discount rate?

The

**discount rate**is the interest**rate**charged to commercial banks and other depository institutions for loans received from the Federal Reserve's**discount**window. The**discount rate**also refers to the interest**rate**used in**discounted**cash flow analysis to determine the present value of future cash flows.12

## What is internal rate of return excel?

**Excel IRR**Function. The

**Excel IRR**function is a financial function that returns the internal rate of return (

**IRR**) for a series of cash flows that occur at regular intervals. values - Array or reference to cells that contain values. guess - [optional] An estimate for expected

**IRR**.

13

## What is the cost of capital?

**Cost of capital**refers to the opportunity

**cost**of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment with equal risk. Thus, the

**cost of capital**is the rate of return required to persuade the investor to make a given investment.

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## What is the meaning of capital budgeting?

**Capital budgeting**, and investment appraisal, is the planning process used to determine whether an organization's long term investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization structure (

15

## What is NPV in finance?

In

**finance**, the**net present value**(**NPV**) or net present worth (NPW) is a measurement of profit calculated by subtracting the present values (PV) of cash outflows (including initial cost) from the present values of cash inflows over a period of time.16

## How do you work out NPV?

**Part 1**

**Calculating NPV**

- Determine your initial investment.
- Determine a time period to analyze.
- Estimate your cash inflow for each time period.
- Determine the appropriate discount rate.
- Discount your cash inflows.
- Sum your discounted cash flows and subtract your initial investment.

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## What is an arr?

**ARR**is an acronym for Annual Recurring Revenue and a key metric used by SaaS or subscription businesses that have Term subscription agreements, meaning there is a defined contract length.

**ARR**is the value of the contracted recurring revenue components of your term subscriptions normalized to a one-year period.

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## What is the accounting rate of return?

**Accounting rate of return**, also known as the Average

**rate of return**, or ARR is a financial ratio used in capital budgeting. The ratio does not take into account the concept of time value of money. ARR calculates the

**return**, generated from net income of the proposed capital investment. The ARR is a percentage

**return**.

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## What is the profitability index?

**Profitability index**(PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment.