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what is the difference between IRR and interst rate
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Answer Posted / goldie sahni
Internal rate of return(IRR) is the discounted rate at which the present(future values discounted at certain rate r) value of all cash outflows(over life of a project)becomes equal to the present value of all cash inflows.
Present value of a cash flow=Amount projected/(1+ r)^t
where r=IRR,t=number of years from project start.
Interest rate is cost of capital i.e.rate at which capital(debt)becomes available from market like 10% or 15%.
For a project worth starting,IRR should be greater than the interest rate at which capital investment into the project is done.
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