Livestock Economics, Marketing and Business Management

INTERNAL RATE OF RETURNS IRR)

• It is the rate of return per rupee invested in an agricultural project over its life span.
• For example if the IRR is 30 percent in a livestock project, it means that this project gets an average annual return of Rs.30/ per Rs.100/ invested in the project over its life span.
• It is the rate of return at which the present value of total cash flows in a project over its life span.
• It is the rate of return at which the present value of total cash flows in a project is equal to zero.
• In other words, it is the discount rate at which NPW of the project is zero i.e.

 

• Present worth = Future value / (1+r) ^t
• For a project to be viable it should have a BCR of one or greater than one at the opportunity cost of capital and NPW of zero or greater than zero at the opportunity cost of capital and the discount rate for IRR should be greater than the opportunity cost of capital.
• The NPW is inversely related with the discount rate. Higher the NPW lower the discount rate and lower the NPW higher the discount rate and vice versa.