How accurate are private equity performance valuations?

  • Ignores future costs: The IRR is based on cash flow projected to generated by a capital investment without considering possible future costs that may affect profits. For example, if one is investing in transport vehicles, one needs to arrange a place for parking them, but such costs may not be factored into the IRR. The IRR may permit the purchase of a vehicle, but if the benefits will be offset by having to arrange for parking, the investment is not worthwhile.

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Acuity Knowledge Partners

Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/