Page 65 - FM Integrated WorkBook STUDENT 2018-19
P. 65
Investment appraisal – Discounted cash flow techniques
5.2 Advantages and disadvantages of IRR
Considers the time value of money Doesn’t measure absolute profitability
Is a relative (%) measure and easily Linear interpolation is only an estimate
understood
Based on cash flows not profits Relatively complicated to calculate
Considers whole life of project Non-conventional cash flows can lead to
multiple IRRs
Can be calculated without reference to
cost of capital
Should lead to maximisation of
shareholder wealth
55
