doesn t consider anomalies in cash flows
assumes that reinvestments are made at the same internal rate of returnexample of the irr rulelet s assume that a company is reviewing two projects in which to invest its money management must decide whether to move forward with one both or neither of the projects its cost of capital is 10 the cash flow patterns for each project are highlighted in the following table the company must calculate the irr for each project the initial outlay period 0 will be negative solving for irr is an iterative process where results for each period are summed using the following equation the upper case sigma denotes summation or creating terms for each period using the formula that follows the symbol and then adding the result for each period 