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Hi John
When we are calculating cost of debt to the company using IRR, why is the first cashflow at time 0 negative and the last. Time period cash flow positive?
As per my understanding at Time 0 company is raising debt hence an inflow of cash while at the time of repayment, it is an outflow of cash.Please explain. I am confused. Watched the lecture video twice but couldnt point out why.
Regards
RashiBy all means have the first cash flow positive and the other cash flows negative. The IRR will be exactly the same (an NPV of zero is equal to an NPV of minus zero !!).
The reason we usually set them up the way we do is because we are used to setting them up this way when we calculate IRR’s of projects.
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