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Dear Sir John,
I do know how to calculate IRR and all the related stuff, but I want to make sure what does IRR tells!?
I know IRR is the cost of capital where NPV = 0
But does it also means that we are trying to find Safety of Margin? Like if Cost of Capital increases from say, 10% to 13% will the investment be still viable? Does it convey this message?
Regards
Have you watched our free lectures? Because in the lectures this is all explained in detail.
Our lectures are a complete course covering everything needed to be able to pass F9 well.The relevance of the IRR is that it is impossible in practice to be able to calculate the cost of capital precisely. If we know the IRR then what matters is whether the cost of capital is likely to be less than the IRR (in which case we should accept) or whether it is likely to be more than the IRR (in which case we should reject).
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