IRR is crucial for investment appraisal as it helps businesses determine the potential profitability of investments. Here are some reasons why IRR is important:
Comparison: It allows businesses to compare the profitability of different projects or investments irrespective of their scale. Decision-making: IRR helps in deciding whether to proceed with a project. If the IRR exceeds the company's required rate of return, the project is considered viable. Capital budgeting: IRR is a key metric in capital budgeting processes, aiding in the allocation of resources to the most profitable projects.