Creating business plans, internal rate of return Good day to all my readers. In this article I will tell you about the economic sense of the internal rate of return (IRR Internal Rate of Return). The course of my thoughts, I write, you read it, If you have any questions appear, you can write them to me on the soap, I'll try to answer all of you. Article is not large, so begin the narrative. The first law of economics says that a dollar today is worth more than a dollar tomorrow.
You can convert this into any currency, but the meaning remains the same. This law means that now we can invest our dollar in any enterprise, and tomorrow it will be the sum of two dollars. Let it even be bank on the deposit which accumulates on that dollar interest rates. Find out detailed opinions from leaders such as fuel tanks by clicking through. Knowledge of the law allows you no longer study economics. If you know how to make a dollar tomorrow of two, then you do not need no economy. Well Come Rock out on the theory and practice to begin. But in practice, we need money, real money. For business we need or equity or debt capital.
Which of these capitals must be able to choose to calculate. When investing in the equity business the entrepreneur is less risk, and by investing in business loans – the risks are increasing (non-payment of interest). For the investor, in contrast to the entrepreneur, risks of equity investment is higher than the loan. Because the investor is engaged in risky investments. Search for investment – this is work, boring work with a calculator. To select a method of investing, we should be able to using economic indicators. The net present value, internal rate of return, a modified rate of return, payback periods, and so on. All these figures are calculated from the rate of return. Rate of return, discount rate, discount factor – all the same figure, only the name is different. In this article we will examine the economic internal rate of return figure. In order for us to figured with an index rate of return, we must understand the indicators such as net present value and discount rate. If there is, some gaps in previous articles, I detailed lay out the figures, you can contact them. So, what is for internal rate of return? How did the internal rate of return? In calculating the net present value of the testimony, economists have noticed a trend that an increase in the discount rate decreases the net present value. That is when lifting bracket rate of return decreases NPV. Since the internal rate of return – this is exactly the rate The discount rate of return at which net present value becomes zero. Now it becomes clear why assume the internal rate of return. This is the rate of return, a percentage which generates our project. That is, when calculating the internal rate of return, we get the rate at which we receive our profits. If the internal rate of return equal to fifty percent, it means that we invest in our business nearly fifty percent of revenues. But the net for one thing. Internal Rate of Return – is the maximum percentage that generates our project. To get a fifty percent return, it is necessary that all payments have grown together in reality. Otherwise, there will be fifty percent of income. Thank you for your attention. You successful investment.