EDP Notes

ADVANTAGES

1) This method considers all the cash flows over the entire life of the project.
2) Cost of capital need not be calculated.
3) IRR gives a true picture of the profitability of the project even in the absence of cost of
capital.
4) Projects having different degrees of risk can easily be compared.
5) It takes into account the time value of money.
 DISADVANTAGES 

1) It is difficult to understand and use in practice because it involves tedious and
complicated calculation.
2) Sometimes it may yield negative rate or multiple rates which is rather confusing.
3) It is applicable mainly in large projects.
4) It yields results inconsistent with the NPV method if projects differ in their expected life
span, investment timing of cash flows