Criteria for IRRSuppose you own a small real estate business and want to expand your business profile. You discuss this idea with your financial advisor, and he suggests the following projects/businesses:A logistics business requiring an investment of ₹20,00,000, with an internal rate of return of 18%A bottling plant requiring an investment of ₹5,00,000, with an internal rate of return of 10%A construction project requiring an investment of ₹75,00,000, with an internal rate of return of 22%To invest in any of the projects/businesses mentioned above, you would need to borrow money on credit, for which you have the following options:From the bank at an interest rate of 12%, if the loan amount is less than ₹10,00,000From an NBFC at an interest rate of 15%, if the loan amount is greater than ₹11,00,000 less than ₹50,00,000From institutional investors at an interest rate of 24%, if the loan amount is greater than 51,00,000 and up to ₹1,00,00,000You can choose to borrow from only one of the options given above. Also, you can invest in only one of the projects/businesses.Which investment option will you choose based on the IRR technique of project evaluation?Logistics businessBottling plantConstruction project

IRRA company is looking for an opportunity to invest ₹1,500 crore, for which it has identified five independent projects. The cash flows and the initial investment requirement of these five projects are as follows (in ₹ crore):  Project 1 Project 2 Project 3 Project 4 Project 5Year 0 (Initial investment) -1,200 -1,500 -700 -700 -300Year 1 500 400 200 300 100Year 2 500 500 250 300 100Year 3 500 600 300 300 100Year 4 500 700 350 300 100Consider the rate of interest as 7.5%.Which of the following projects has the highest IRR ?Project 2Project 1Project 4Project 3Project 5

You are considering investing in a start-up project at a cost of $111,000. You expect the project to return $521,000 to you in 6 years. Given the risk of this project, your cost of capital is 17%. What is the IRR for this project?

A firm is considering a project that requires an initial outlay of £65,000. It will have a life of 6 years. It will generate free cash flows of £10,000 in years 1 – 4 and £20,000 in years 5 and 6. The firm has a cost of capital of 8%.Using Internal Rate of Return (IRR), should it accept or reject this project?

IRR Technique of Project EvaluationAn FMCG company wants to introduce a variety of fizzy drinks, but to produce these drinks, the company will have to expand its current production capacity. It has identified three types of machines available in the market, whose costs vary according to their production capacity and maintenance. For these three machines, the finance team has evaluated the following cash flows (in ₹):   Small Machine Mid-sized Machine Large MachineYear 0 -1,00,000 -7,50,000 -15,00,000Year 1 40,000 2,50,000 4,00,000Year 2 40,000 2,50,000 4,00,000Year 3 40,000 2,50,000 4,00,000Year 4 40,000 2,50,000 4,00,000Year 5 40,000 2,50,000 4,00,000The company can choose only one of the three available machines. According to you, based on the IRR technique of project evaluation, which machine should the company purchase? Consider an interest rate of 7.5% Mid-sized machineSmall machineLarge machine

You are considering investing in a start-up company. The founder asked you for $200,000 today and you expect to get $1,000,000 in nine years. Given the riskiness of the investment opportunity, your cost of capital is 20%. What is the NPV of the investment opportunity? Should you undertake the investment opportunity? Calculate the IRR for this investment. Should you undertake the investment opportunity under the IRR rule?