Advantages:
- Does consider the time value of money.
- A percentage is easily understood.
- Uses cash flows.
- It considers the whole life of the project.
- It does not need the cost of capital to be known.
- A company selecting projects where the IRR exceeds the cost of capital should increase shareholders wealth.
Disadvantages:
- It is not a measure of absolute profitability.
- Interpolation only provides an estimate.
- Fairly complicated to calculate although spreadsheets have inbuilt programs.
- Non-conventional cash flows may give rise to multiple IRRs.
IRR
