3.IRR- the discount rate that makes the present value of the cash inflows equal the initial investment (similar to bond yields). EQUATION: IRR = Rule: If IRR is larger than required return (cost of capital) accept project. CALCULATOR -80000 CFj 25000 CFI 25000 CFI 10000 CFJ 50000 CFJ 70000 CEI IRR If the required return is 10%, should the project be accepted? If the required return is 10%, should the project be accepted? Advantages: -the answer is a yield or rate of return -managers like an answer as a rate of return HOWEVER: the reinvestment rate assumption for the cash flows is the IRR