Recall that the internal rate of return (IRR) is the discount rate such that the net present value (NPV) of a project is 0.
What is the economic meaning of this phenomenon? Beyond the economic meaning, what are the project financing implications? Say your IRR hurdle rate is 10%. Should you do this project or not?
I know there is a related issue, where the IRR doesn't exist. That doesn't seem like as big a deal, because if the NPV of a project is positive for all discount rates then that seems like a very good project (and if always negative then it is a very bad one). Is there a modified IRR decision rule that handles the situations where the IRR is non-unique or non-existent?
Some claim this is a reason to use NPV instead (Jan (2016)). But I don't see how that helps. What do we make of a project like this, one that has a positive NPV with a discount rate of 10% (\$1,429.94) and a negative NPV for a discount rate of 5% ( -\$1,008.15)? Are we really saying that this is a project that if profitable if your cost of capital for the project is ten percent but unprofitable if your cost of capital in five percent? Doesn't that seem off and maybe even wrong? Normally, having a lower cost of capital is an advantage!