# IRR

does your IRR change if the discount rate changes?? i’m assuming no? can someone explain

IRR does not depend on your discount rate at all. NPV=CF0+Sum(CFn/(1+r)^n)

The IRR does not change if the discount rate changes. The NPV of the project will change if the the discount rate is changed. IRR and discount rate are two different things. The discount rate is the opportunity cost of capital and varies from firm to firm. The IRR is the discount rate that would make the NPV of the total cash flows equal to zero.

ok what about greater cash flows??

IRR does not scale up with increased cash flows, if thats your question. if the irr for a certain cf stream is r%, the irr for 2x the same cash stream is not 2r%. it is still r%. the mathematical eqn for irr makes this clear. and if you increase cash flows in different proportions (i.e not a uniform scaling up/down), i think the impact on irr is difficult to generalize. it would depend on the relative changes in amount/timing of the cf’s.

ok perfect! thank you! I know this will be an important point on the exam