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Last edited 24 Sep 2020
Internal rate of return for property development
It is a similar calculation to Net Present Value (NPV) and Discounted Cash Flow (DCF) in that anticipated future income and expenditure are used to assess whether or not to proceed with a project. The IRR is the percentage which, when applied to future capital costs and receipts, results in a Net Present Value of £Nil.
Usually the project IRR must exceed the cost of capital by an agreed amount so that the risk of proceeding is seen to be within acceptable commercial parameters. It can be seen, therefore that an accurate cash flow projection for a prospective project must be developed before an accurate IRR assessment can be made.
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