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#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10

Decision rules:

  • The higher the IRR, the better.
  • Define the hurdle rate, which typically is the cost of capital.
  • Reject if IRR is less than or equal to the hurdle rate.
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Subject 3. Investment Decision Criteria
ply the NPV formula solved for the particular discount rate that forces the NPV to equal zero. The IRR on a project is its expected rate of return. The NPV and IRR methods will usually lead to the same accept or reject decisions. <span>Decision rules: The higher the IRR, the better. Define the hurdle rate, which typically is the cost of capital. Reject if IRR is less than or equal to the hurdle rate. IRR does provide "safety margin" information. Calculate Project A's and B's IRR. Project A: -1000 + 750/(1 + IRR) 1 + 350/(1+IRR) 2 +


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