Internal rate of returnCrashbandicoot5Calculation and analysis tool of: calculation of internal rate of return and enterprise value
Internal rate of return (Internal Rate of Return, IRR) is an important index in investment project analysis, which is used to measure the profitability of project investment. This paper will introduce in detail the calculation method of IRR and its role in enterprise value evaluation.
IRR is the discount rate that makes the net present value (NPV) of the project equal to zero, that is, under this discount rate, the cash inflow present value of the project is equal to the present value of cash outflow. To calculate the IRR, it is necessary to analyze the cash flow of the project and use mathematical methods such as iterative method or Newton method to solve it.
The basic steps for calculating IRR are as follows:
oneCrashbandicoot5. Determine the expected cash flow of the project, including the initial investment and cash inflows and outflows for each period.
two。 The mathematical methods such as iterative method or Newton method are used to find the discount rate which makes NPV equal to zero.
3. Comparing the cost of capital (WACC) between IRR and the enterprise, if IRR is higher than WACC, the project is considered to have investment value.
The following is an example of IRR calculation:
Year cash flow (ten thousand yuan) 0-1000 1 200 2 300 3 400The IRR calculated by iterative method is about 17.5%. If the cost of capital of the enterprise is 12%, the project has investment value because IRR is higher than WACC.
The role of IRR in enterprise value evaluation:
1. IRR can be used to evaluate the profitability of the project and provide a basis for investment decisions.
two。 By calculating the IRR of different projects, enterprises can optimize projects and give priority to investing in projects with high returns.
3. For the evaluation of the overall value of the enterprise, the intrinsic value of the enterprise can be obtained through the discounted calculation of weighted average cost of capital (WACC) and free cash flow (FCF).
To sum up, as an index to measure the profitability of project investment, IRR plays an important role in enterprise value evaluation and investment decision. Enterprises should fully understand the calculation methods and application scenarios of IRR in order to better carry out capital operation and value management.