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The limitations of using IRR as a metric for project evaluation include: it assumes that the cash flows are reinvested at the IRR itself, which may not always be the case; it may not give a clear picture when comparing projects of different sizes or durations; it doesn't consider the cost of capital; and it may give multiple values for projects with alternating cash flows.
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Are you looking to determine which investment opportunities are best for your company, especially when multiple options are available? How can you tel...
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The Internal Rate of Return (IRR) tab calculates the profitability of an investment, considering the initial investment, future cash flows, and holding period. On the IRR tab, use the bar chart to analyze the net cash flows and determine the break-even point – the point when revenues equal costs. Use IRR when comparing projects with similar risk profiles or when you need a single metric to evaluate a project's performance.
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