Describe the internal rate of return criterion and its strengths and weaknesses.

Course: Finance for Managers
Module 5: Capital Budgeting
Goals
After completing this module, you will be able to do the following:
⦁ Outline the facts of the payback rule and some of its shortcomings.
⦁ Accounting rates of return and some of the problems with them.
⦁ Describe the internal rate of return criterion and its strengths and weaknesses.
⦁ Recognize why the net present value criterion is the best way to evaluate proposed investments.
⦁ Calculate the profitability index and understand its relation to net present value.
⦁ Interpreting how to determine the relevant cash flows for a proposed investment
⦁ Understand how to analyze a project’s projected cash flows.
⦁ Practice how to evaluate an estimated NPV.