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Hey John,
This might be a bit silly but I’ve noticed that in all the IRR explanation examples Investment projects are used and rightfully, the intial cashflow is an outflow and the succeeding ones inflows. I do realise that the answer is the same because we just need to find rate for 0 npv. But all the answers use the standard intial cash outflow and eventual inflow method regardless of whether its a financing or investment project. But when calculation IRR especially for cost of debt, isn’t the intial MV amount supposed to be an inflow and the interest payments and eventual redemption amount outflows?
Thank you!By all means show the flows the other way round, and as you state the answer with be exactly the same.
The reason we normally show the initial amount as an outflow is simply that is what we are used to doing when we calculate the IRR for a project.
I do say this in my free lectures.
I must have missed it in the lecture or it just slipped my mind. Regardless, thank you so much for the quick response !
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