He expects an internal rate of return of between 15% and 20% over the project's lifetime.
Generally, if one of his companies produces an internal rate of return of 10%, he gets nothing.
By that he meant that it has no internal rate of return like stocks and bonds do.
We can analyze this annuity purchase like an investment and calculate an internal rate of return (IRR).
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Just one problem: Madrona's new fund realized a measly 2.6% internal rate of return in the past year.
Over the past 15 years and 40 shows, Baruch says, his company has posted an average annual 40% internal rate of return.
Mr Morris argues that private-equity managers have charged excessive fees and overstated returns by using misleading measures of their internal rate of return.
The high cost to expand the mine given the current negative sentiment in the mining industry raised a few eyebrows with analysts due to the low internal rate of return.
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Internal rate of return for instance focuses attention on short term costs and benefits and discounts medium-term costs and benefits (like staying in business) so that they appear almost irrelevant.
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They show that in four years it has not returned a single penny to investors in the fund, which has posted an internal rate of return of -74.01% as of the end of May.
Indeed, the IMF's analysis suggests that the internal rate of return on invested capital in publicly traded firms in emerging markets has been very poor over the past decade, even before currency risk is taken into account.
So Lack performs his own asset-weighted calculations (similar to the internal rate of return methodology of measuring private equity or real estate fund performance) using BarclayHedge data to measure how the average investor as distinct from the average fund has done.
Now the internal rate of return, or IRR, matters to us, because it in turn determines the terms of the so-called contract for difference agreed by the government with EDF, which in turn determines the price that consumers (us again) will pay for nuclear-generated electricity.
Broadly what it comes down to (in terms that may seem unenlightening when stated baldly, but I will elucidate) is that EDF feels it needs an internal rate of return on Hinkley of 10%, and the Treasury fears that means it would make excessive profits.
After all, if they thought that whatever expansion they were considering would only yield an internal rate of return of 5%, they would conclude that they should not engage in the expansion since it would cause them to lock in a guaranteed loss of 1% per year.
Much like Manhattan apartment brokers who resist putting their best properties on a central listing service, PE firms use performance measurements like multiple of investment or internal rate of return that make it virtually impossible to compare one fund against another unless they started the same time and have had similar cash inflows and outflows.
If a firm can deploy the incremental dollar of cash flow at a rate of return greater than its cost of capital, it should pursue acquisitions or internal capital projects, as these methods will be the fastest way to build shareholder value.
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