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John Moffat.
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Isabella1
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One of disadvantage of IRR is that it may be difficult to determine the cost of capital.
Please explain.
John Moffat
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A company raises money from several places (shareholders, borrowing etc..) and it is not easy to calculate the overall cost of money. (Although the calculation and the difficulties are not examinable until Paper FM).
However if we are not sure of the cost of capital it becomes difficult to be able to compare the IRR with the cost of capital in order to decide whether or not a project is worthwhile.
Isabella1
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