Incremental IRR
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- Опубликовано: 2 апр 2015
- Due to differences in the scale, timing, and riskiness of projects, we cannot simply compare the IRRs (incremental rates of return) of two projects. However, we can compute the incremental cash flows of choosing one project versus the other and compute an incremental IRR for these cash flows. This incremental IRR can then be compared to the discount rate to determine which project is more profitable. That being said, the incremental IRR is problematic when some of the negative cash flows do not precede the positive cash flows. Furthermore, the incremental IRR tells us which project is more profitable but it does not tell us whether each of the projects has a positive NPV on a stand-alone basis. And, if the projects have different costs of capital, then we have the additional problem of not knowing the cost of capital to which we should be comparing the incremental IRR.-
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I have a midterm tomorrow and you cleared a misconception I had, now I'm more confident than ever, thanks!
It never occurred to me that you can get a new cashflow by comparing two cashflow, and that new cashflow had its own IRR called Incremental IRR.
for all the good things you have done for students all around the world you should be given a noble prize to be honest
If we had had such a teacher we would have done better results ever. Respect
Comments like these brighten my day!
Thank you so much !!!!!! Keep up the good work and we need more videos from you.
Nice work. A far better explanation that my lecturer provides at University!
thanks!!!! I didnt really understand this from my prof's lectures, now it makes sense!
Thank you so much. Much simpler explanation than that in the book.
No problem!
Thank you, you single-handedly saved an assignment problem for me #Hero
Happy to help! Glad you figured it out :)
Saved me several hours of effort of reading through useless class notes. Thanks!
No problem!
Wow! Super clear video, thank you very much!
Glad to help!
what happens when there is salvage value in the cash flow?
Great vid. I have one question though... my prof seems to really insist on having initial investments compared over NPV at most times. Would you consider initial investment as a make it or break it for a project? Thanks
Well explained. Thank you.
Well explained 👏🏾
thank you very much for teaching
THANK YOU! It helps so much :)
No problem!
Amazing!
You are a saint. Thank you so much
So if Project 2 has an Incremental IRR over Project 1 greater than the cost of capital(same for both projects), will it always have a positive NPV as long as IRR for Project 1 is also greater than cost of capital?
thank you, have learned alot
Clear statements, spot on video
I learned a lot. Thank u sir.
No problem. Best Wishes!
Professor - At one point you mention (as a Caveat) that you cannot say whether the two projects on a stand-alone basis are positive NPV. But that's not true, is it! Both the projects ARE positive NPV because their IRRs are greater than the given discount rate of 10%. Could you clarify what you mean by that caveat?
This Video is very helpfull, Thx
I'm glad you found it useful! Best wishes
You told us that IIRR of this example is 29%. that is IIRR calculated to chose project 1 over project 2. What if we calculate it the other way around? as in find the IIRR to see of project 2 is profitable more than project 1. in which case there would be two different values of IIRR. Am I right? one IIRR would be high than the other one right? so, in this case, which project should I accept? Please answer my question. Thank you!!
God, these got me through my exams!
Excellent!
Thank you!
You're welcome!
Excellent explaination
Thanks!
fantastic
Will you please make a video for the APV
The last part of this video made think how to calculate incremental NPV when the projects have different discount rates? I really want to know.
OMG big thanks to this video.
Thanks. Best of luck to you in your studies!
How to calculate the 29% by hand?
But how do you calculate it without using the calculator on excel
God bless you
no kidding you are my life saver =)
Happy to help!
how did you find the 38% and 31% by hand, i need to know this plz thx
You can only do it by trial and error. just set the NPV to 0 and try different values for IRR
sir what if time periods are different
Lol. doesn't help at all unless you're using the excel function
👍
I’m sorry but I don’t understand. I don’t know how you got the 38 and 31%. I’m lost so I’m gone
IRR is the value (rate) such that NPV = 0, so you can only get it thanks to trial and error. So he just used the excel formula that does the trial and error for us, and then he rounded up the numbers for simplicity purposes