Capital budgeting and the stochastic cost of capital
Article Abstract:
Internal rate of return remains to be the most widely adopted capital budgeting strategy among US business enterprises, despite its inherent drawbacks. Although IRR presents decision-making and project-ranking difficulties, statistics revealed that more than 60% of multinational firms employ the technique. The growing popularity of IRR can be explained by the stochastic nature of cost capital. Financial managers tend to choose IRR over net present value since it underscores a firm's internal characteristics, instead of the general financing environment.
Publication Name: Managerial Finance
Subject: Business
ISSN: 0307-4358
Year: 1997
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Evaluating on-going projects and divisions
Article Abstract:
Internal rate of return (IRR) and modified internal rate of return (MIRR) are two capital budgeting strategies which guarantee optimal results when evaluating the feasibility and profitability of on-going projects and divisions. Although the two techniques are relatively the same, MIIR is more preferable since it generates more accurate reinvestment rate projections. Experts claim that continuance decisions and profitability determination can be made more accurate if NPV is evaluated over a specific period of time.
Publication Name: Managerial Finance
Subject: Business
ISSN: 0307-4358
Year: 1997
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