W9_Hassan Albarrami_ (IRR)


W9_Hassan Albarrami_ (IRR)

  1. Problem Definition

In this blog I’m going to take the same case study (see W8 blog) but this time, IRR will be calculated for this project to See wither the project still a wise investment or not.

  1. Identify the Feasible Alternative

Either to go ahead with the project (IRR > 0), or to cancel the project (IRR< 0).

  1. Selection Criteria

IRR (Internal Rate of Return) is a financial indicator that assessing return on an investment or a project. It is the discount rate which makes the net present value of the cash flows from the investment equal to zero.

3

Where

t: time

C : cash flow

r: internal rate of return

NPV: net present value

 

The table below is showing the cash flow and IRR in EXCEL ( go to this link to show how to calculate IRR http://www.youtube.com/watch?v=qAhV3xG0i8s)

2

 Table 1. IRR calculation

  1. Selection of the Preferred Alternative

It is clear from the table that IRR= 44% which means I can gain 44 OMR for each 100 OMR I invest now. We can say that this project is acceptable.

  1. Performance Monitoring and the Post Evaluation of Result

As the IRR is showing very high it would be better to assess the project again by using another method. I will use ERR in my next blog

Reference

  1. Economywatch , Internal Rate of Return, Discount Rate, IRR, Retrieved on 01.08.2014 from http://www.economywatch.com/investment/internal-rate-of-return.html
  2. PMI-Oman 2014 , W8_Hassan Albarrami_ (NPV), Retrieved on 01.08.2014 from https://pmioman14.wordpress.com/author/sulmanhassan/
  3. Iinvestopedia , Internal Rate Of Return – IRR on   01.08.2014 from http://www.investopedia.com/terms/i/irr.asp
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4 thoughts on “W9_Hassan Albarrami_ (IRR)

  1. EXCELLENT, Hassan!!! Nice work……. Be sure you cite the work of Saaed and compare his recommended MARR when evaluating your projects, although at 44%, it would be pretty hard NOT to……

    What would make an interesting blog posting for W11 would be to take a PORTFOLIO of projects (at least 5) and then rank order them by IRR and ERR then using the appropriate hurdle rates calculated by Saaed, see if there are any projects in your portfolio which should be killed off……..

    Bottom line- it just doesn’t get any more REAL than this………

    BR,
    Dr. PDG, Jakarta, Indonesia

  2. Pingback: W9_Hassan Albarrami_ (ERR) | PMI-Oman 2014

  3. Pingback: W11_Hassan Albarrami_ (IRR,ERR,MARR) | PMI-Oman 2014

  4. Pingback: W12_Hassan Albarrami_ (IRR,ERR,MARR) (2) | PMI-Oman 2014

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