Internal Rate Of Return(IRR) With Merits And Demerits

Internal Rate Of Return(IRR):It is the actual rate of return expected from an investment .The IRR is the discount rate that makes the investment,s net present value equal to zero.The internal rate of return method is that rate of return at which the present value of cash flows and cash out flows are equal.

1.According to James C.Van Horne,"The internal rate of return for an investment proposal is the discount rate that equates the present value of the expected value of the expected net cash flows with the initial outflows"

2.According To Khan And Jain,"IRR is defined as the discount rate which equals the aggregate present value of the net cash out flows with the aggregate present value of cash outflows of the project.

Merits:
1.   It considers the time value of money.
2.   It takes into account the total cash inflows and outflows.
3.   It does not use the concept of the required rate of return.
4.   It gives the approximate/nearest of return.
Demerits:
1.   It involves complicated computational method.
2.   It produces multiple rates which may be confusing for taking decision.
3.   It is assume that all intermediate cash flows are reinvested at the internal rate of return.