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One of advantage of IRR written in Kaplan book is that it is calculated without reference of cost of capital. Can you explain it sir?
We do not use the cost of capital in order to calculate the IRR. So we do not need to know the cost of capital.
Sir we take two different NPVs at two different cost of capitals and then estimate IRR as you have shown in your lecture so here we are using cost of capital to find IRR.
No. We make two separate guesses in order to estimate the IRR. They can be any two guesses, as I explain, and we do not need to know what the actual cost of capital to the company is.
The guesses are two different rates of interest – they are not the cost of capital to the company.
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