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Economics/Equity IRR and Project IRR


1. What is the difference between Equity and Project IRR?

2. What does it mean when Project IRR is higher then your Equity IRR?

3. What is the relation between cost of debt, costs of equity, and Project and Equity IRR.

I'm happy to help here, Raj, but I need for you to answer a question from me first: In what context did these three questions arise? In other words, how did they get on your radar screen?

Warren Miller, CFA, CPA
Founder - LinkedIn's Strategy Reading Group


Thank you, Raj. I received your Reply and I understand that you prefer, probably for professional reasons, to keep the information that you shared with me 'Private'. Although my profile expressly stipulates that I do not respond to requests for help that are marked 'Private', I respect your wishes in this instance. So rather than reply to your second message to me, I'm going to expand my reply to your initial request for help. That way, others will be able to see it and, I hope, learn from it just as I hope you will.

I trust that this is an acceptable way to proceed. I have not violated your privacy or the trust you placed in me with your 'private' reply.

Here we go, sir:

I'm going to teach you how to answer your own questions. I'm confident that a guy who characterized his job title the way you characterized yours to me privately will be able to do this. I have read and reread my instructions below and I'm quite sure that you will find them helpful. One way or the other, though, please let me know , sir.

Please begin by clicking here . You are now on the Google home page.

Then hit this keystroke combination: Ctrl+L (which means to hit the Ctrl and L keys at the same time). You should now be in the 'browser window' on the Google home page. N.B.: no matter what browser you use, Ctrl+L will put your cursor into the 'window' at the top where you can then type an URL (website address) or, as you're about to do in this situation, you can type in one or more 'search terms' to help you find information on the internet.

One other thing: If you hit Ctrl+L on a webpage other than Google's homepage , you will find that you have 'selected' all of whatever was in the browser window before you hit Ctrl+L. You can then start typing without having to go to the end of whatever is in that window and then repeatedly hitting the Backspace key to remove what was there </u> . This helps you save time.

Now, in the browser window, type the following terms exactly as they appear here (including the word 'and'): "equity IRR" and "project IRR"

Now hit the [Enter] key on your keyboard.

You will get, literally, thousands of 'hits', ten to a page; by 'hits', I mean 'Results of Your Search'. Hits are links that you can click on to read about the two search terms within the quotation marks. The word AND is 'boolean' - it means that the results you get will have the exact phrases "equity IRR" and "project IRR" within each 'hit'.

I doubt that you're going to read through every one of the thousands of links. But you should look through the first four or five pages of results--40 or 50 hits--to give you a sense of what the most relevant results (according to Google) are saying. You can get that sense by reading the explanations that are visible to you without clicking on a link. When you've skimmed through those first four or five pages, then hit the keystroke combination Alt+R (the Alt and R keys simultaneously); by hitting that combination once, you will go to the previous page of Google results. If you hit that combination four or five times, you will be returned to the first page of results.

Then click on the link(s) that you think are most likely to help you answer the three questions that you wanted me to answer. After you read what's beneath a link, you can then hit the Alt+R keystroke combination to return you to the page of results that you were on before you 'drilled down' beneath a link to read what is under it.

Once you've gone as far as you can teaching yourself about the answers to your questions , I respectfully request that contact me again on this thread and let me know what you learned. I'd also appreciate knowing how clear--or unclear--you thought my teaching instructions were.

As I'm sure you understand, I'm trying to help you help yourself. That makes you a more self-reliant individual. In today's world, we all need to know how to teach ourselves, and that's what I hope I've taken the first steps here in helping you do.

I look forward to hearing back from you. Good luck, Raj!


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Warren D. Miller, CFA, CPA, ASA


My expertise in economics is limited to three sub-disciplines: Austrian economics, industrial organization, and evolutionary economics. Questions dealing with macroeconomics and other sub-disciplines of the subject should be submitted to those who have the appropriate expertise. N.B.: I DO NOT ANSWER QUESTIONS MARKED 'PRIVATE' because I believe that knowledge should not be hoarded. I also believe that such questions are likely to come those trying to cheat. Also, as one who was a full-time academic for half a decade, I can recognize test/homework questions several time zones away. Do not demean yourself by submitting such questions to me. Those who do so are cheating; I WILL call you out publicly. I have a zero-tolerance policy for cheating and dishonesty. In addition, please don't emulate the businessman who posted a request for help in August 2008. He expressly denied that he was seeking "investment advice" and said that his query was for, and I quote, "educational and informational purposes." Later, he allowed as how his questions related to the possible purchase of a $500K piece of equipment. I said I thought he had misrepresented himself. Bottom line: high-end business consulting is how I make my living. I am the sole support for my family. Please respect that fact and don't try to get for free what our clients pay for. If your company is big enough to have a sophisticated problem, it can afford to pay for the expert advice we and others provide. Beckmill Research, LLC, is a 95-octane firm. We're small, but we've been at this for nearly 20 years. We know what we're doing. Segue: Early on, some asked me for career advice; I gave it. I now get many such requests. The demand for a valuable good that is free is unlimited, so I now charge for that advice. Email me: Finally, PLEASE DO NOT ASK FOR INVESTMENT ADVICE. I am not licensed to provide such advice. If you want such counsel, talk to your financial planner or other financial adviser.


I work with Austrian economics (which differs in major respects from the traditional economics), industrial organization (which is about industry structure, conduct, and performance), and evolutionary economics (almost, but not quite, the economic analog of its biological counterpart) every day in my work. I appraise closely-held businesses, provide exit-planning services, and offer high-level strategic analysis, advice, and solutions to CEOs and owners of mid-sized businesses. Understanding, applying, and writing about these disciplines is an essential part of how I have made my living since 1993.

CFA Institute, Strategic Management Society, American Society of Appraisers, Academy of Management, Culver Legion, National Association of Scholars.

CFA Magazine, Strategic Finance, Valuation Strategies, Journal of Advanced Property Economics, Harvard Business Review, American Fly Fisher, CFA Digest, CPA Expert, Business Valuation Review, among others

Chartered Financial Analyst designation (2006); Accredited Senior Appraiser in Business Valuation (2006); Certified Public Accountant (1992); MBA - Oklahoma State University (1991); Completed all of my Ph.D. coursework in strategic management - Oklahoma State University (1983-87); BBA in finance and accounting - U. of Oklahoma (1975)

Awards and Honors
Business Valuation Volunteer of the Year (2001) - American Institute of CPAs; Winner - Oklahoma Humorous-Speaking Contest - Toastmasters International (1971)

Past/Present Clients
Names are confidential. However, the "sweet spot" of our target market is companies that are too big to be small and too small to be big. Usually, those are companies with employees in the 15-to-100 range. At the low end of that range is where companies can first take advantage of the specialization of labor. However, having everyone do everything is a tough habit for many--most, I would argue--small enterprises. That is why they not only remain small, but also fail to survive beyond a second generation. Only 5% (one in twenty) companies make it to the third generation of ownership.

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