How is IRR worked out?


IRR of any project depends upon the cash flows of the project over the expected life time of the project (25 years). The project Inflows and Outflows makes the net cash flows which is used to calculate the IRR.

For Project IRR
Outflows: Investment in the project (Debt + Equity)
Inflow: PAT + Book Depreciation + Interest on Term Loan + Tax Shield (If AD is applicable) + Salvage Value of the Project + Other inflow (if any)

For Equity IRR
Outflows: Investment in the project (Equity Only)
Inflows: PAT + Book Depreciation + Tax Shield (If AD is applicable) + Salvage Value of the Project + Other inflow (if any) – Principal amount of the Loan Repayment

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