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Incremental IRR (Internal Rate of Return). Calculation of Incremental IRR.

In this article, we're going to talk about the incremental internal rate of return. so the reason we need an incremental in IRR is that let's say we had a situation where we had a cost of capital of 8%  and we have 2 different projects or 3 projects and we say oh look the return on "Project 1" is 21% the return on another is 28% and then the return on another is 30%.  We can't just say oh well let's just look and pick the highest IRR and say oh that's the project we want to do and the reason that we just can't look at one IRR and compare to another is that projects are going to differ based on the scale of the investment the timing of the cash flows in the riskiness of those cash flows. So when we're trying to compare projects based on IRR we can run into problems when we have differences that quote on these three levels. Incremental IRR is basically finding a way for us to compare two projects based using the IRR method. So let's walk

Incremental IRR Calculator

What is Internal Rate of Return? Internal Rate of Return (IRR) is a financial metric used to measure the profitability of an investment. It is the interest rate at which the net present value (NPV) of an investment's future cash flows is equal to zero. In other words, it is the rate at which an investment's benefits (cash inflows) are equal to its costs (cash outflows). IRR is a widely used metric in finance and is often used to compare the profitability of different investments. However, it is important to note that IRR is not always the best metric to use. For example, if an investment has uneven cash flows or if it is not an independent project, then IRR may not be an appropriate metric to use.  Incremental IRR is a variant of IRR that is used to evaluate the profitability of a specific project or investment compared to its next best alternative. It is calculated by taking the difference in the IRRs of two projects and comparing the results. This metric is especially us

The global financial crisis of 2007-2008. Causes Explanation & Overview

In the world of finance, we are often quick to forget the tragedies of the past. Yet valuable lessons are to be had by exploring their causes and effects after all in the world of ever-changing rules products and services history is the one constant that can guide us through the ambiguity. It's the early 2000s and investors are looking for new safe sources of return, stocks and bonds are still pretty popular but the tech bubble at the turn of the century showed them that getting your money back from bankrupt firms can be a bit difficult. What about mortgages? That's right mortgages, are the loan you take out when you want to buy a home. After all, for mortgage lenders, these loans are a lot like bonds with bonuses. You receive regular interest payments and if the borrower defaults you get the position of their house. This is a handy fallback because with real estate prices on the rise, recovering your losses is no problem.  Investors don't want to buy the individual mortgag

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Basic Accounting Principles

What is Accounting Principals? Accounting principles refer to the set of guidelines and standards that companies follow when preparing their financial statements. These principles provide a common basis for how financial information should be record…

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The Basic Accounting Formula

What is the Basic Accounting Formula? Accounting formulas are the basic tools that accountants use to record, classify, and summarize financial transactions. They provide a framework for understanding the relationships between a company's assets…

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The Basic Accounting Concepts

What are the Basic Accounting Concepts? Accounting concepts are the fundamental ideas and assumptions that underlie financial accounting and reporting. They provide a basis for consistent and accurate financial reporting, and help ensure that financ…

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Base Stock Method

What is the Base Stock Method? The Base Stock Method is a popular inventory management technique used by businesses to control their inventory levels and prevent stockouts. It is a simple, yet effective method that helps businesses to balance the tr…

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Base Pay Rate Overview and Explanation

What is the Base Pay Rate? Base pay rate refers to the minimum amount of money an employee is paid for their work, excluding any additional bonuses, commissions, or overtime pay. This rate is established by an employer and is used as the starting po…

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Base Jackpot definition

What is a Base Jackpot? The base jackpot refers to the minimum amount of money that can be won in a lottery or gambling game. This amount is established beforehand by the lottery or gambling operator and is the starting point for the prize pool. If …

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Base currency Overview and Explanation

What is a base currency? A base currency is a currency used as the primary unit of account in a currency pair. It is the first currency listed in a currency pair and the value of the second currency is quoted in terms of the base currency. The base …

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Barriers to exiting a market

What are the barriers to exiting a market? Barriers to exit refer to the obstacles or hindrances that make it difficult for firms to leave a market or industry. These barriers can take various forms, including economic, legal, and technological fact…

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Barriers to Entry Overview and Explanation

What are the barriers to entry? Barriers to entry refer to the obstacles or hindrances that make it difficult for new companies to enter a market and compete with established firms. These barriers can take various forms, including economic, legal, a…

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