Question
The Internal Rate of Return (IRR) is a crucial calculation in project management as it helps in making financial decisions. It is used to estimate the profitability of potential investments. If the IRR of a new project exceeds a company's required rate of return, that project is desirable. If IRR falls below the required rate of return, the project is not considered a good investment. Companies like Microsoft might use IRR calculations to decide whether to proceed with large-scale initiatives like stock buyback programs.
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According to Goldman Sachs, over $504 billion dollars of stock buybacks were issued in 2021 — the most in over 22 years. Microsoft made headlines when it announced its own $60 billion dollar stock buyback program in September. So how do companies like Microsoft make the decision to deploy so much capital to stock buybacks? The answer is anIRR calculation.(Slide 8)
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