1. Advantages of IRR The advantage of IRR is that it can link the income during the life of the project with its total investment, point out the rate of return of the project, and facilitate comparison with the industry benchmark investment rate of return to determine whether the project is worth constructing.

2. Disadvantages of IRR The disadvantage of IRR is that it cannot express the net present value, but can only express the ratio.

Therefore, when reviewing the income plan, the internal rate of return and the net present value must be considered together.

Extended information Application of IRR: The advantages of using IRR to measure the performance of PE funds are: First, IRR takes into account the time value, the cash flow throughout the life cycle of the fund, and compound interest calculations, which reduces the fluctuation of income.

Secondly, the characteristics of PE funds are large cash outflows in the early stage and large cash inflows in the later stage. Using IRR will make the return rate approach the real return.

Finally, the longer the period over which IRR is calculated, the more stable the results are, which means that the deviation between the results of the current period and the final fund return is smaller.

Although IRR is widely adopted in the PE industry, its applicability is controversial in academia.

Because in the calculation process of IRR, the IRR of small projects in the short term is often high, but in fact they do not make much money.

Large projects that are truly profitable have long investment cycles and large initial investments, so the calculated IRR is often low.