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Internal Rate of Return

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Internal Rate of Return

  • This topic has 1 reply, 2 voices, and was last updated 9 months ago by John Moffat.
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  • September 10, 2021 at 4:37 pm #635329
    Isabella1
    • Topics: 33
    • Replies: 15
    • ☆

    One of disadvantage of IRR is that it may be difficult to determine the cost of capital.
    Please explain.

    September 11, 2021 at 8:24 am #635486
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49600
    • ☆☆☆☆☆

    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.

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