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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

Should lead to maximisation of
shareholder wealth

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