Hi,
What is the difference between project and equity irr? with an example
2.By default which one should be calculated either Project or Equity IRR?
2 Replies
Kanhaiya
(Nangia & Co.)
(1981 Points)
Replied 02 October 2011
Project IRR is the IRR derived from cash flow generated by Project as a whole, which refers to the returns generate by the Project for its investors whether a debt investor or an equity investor. So we normally consider EBITDA or Cash from Operations as the cashflow for this purpose.
And as far Equity IRR goes is the return generate by Project for Equity share holders. It is calculated on PAT/NOPAT. As it is assumed that if the PAT is not distributed among the equity shareholders then it will be kept as Reserves and Surplus which is in turn paid to Equity holders at the time of winding off. But sometime equity investors considers dividends to have the effect of time value of money.
Prashanth
(Chartered Accountant)
(2322 Points)
Replied 02 October 2011
Thanks for reply but in project irr we dont consider interest and principal payments why so? and by default which method should be calculated?
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