单选题 The economic life of a project is a rather abstract concept for the purpose of IRR (Internal Rate of Return ) calculation, albeit a necessary one. In practice, different components of investment packages are likely to have a different physical life experience. Thus, the mobile equipment of a venture may have a physical life of only 5 to 7 years and require replacement thereafter, whereas a stationary piece of heavy machinery may last 20 years or more without major rehabilitation or replacement work. The IRR analysis requires a common time frame for cost and benefit streams. Therefore, careful judgement must be made about the overall project life in terrors of likely physical and economic life expectancy, taking account of likely technological evolution, replacement costs and economies of scale. These discounting factors decline over the years so that the impact of cash flows in later years on the project"s rate of return becomes less important.
Project implementation period plus project life define the overall time frame for IRR calculations. Cost and benefit streams are established within this time frame. Schedules of a financial nature are important for the establishment of pro forma financial statements and are crucial in determining the financial solvency and creditworthiness of the project sponsors. However, in the financial and economic rate - of- return calculation, the method of financing, of debt servicing (interest and principal repayment), depreciation and dividends are unimportant.
The IRR analysis calls for the consistent establishment of all cost and benefit streams under the same estimated frame (project implementation and project life). Typically the analyst must distinguish between capital cost streams, operating cost streams and revenue streams (benefit streams). The total sum of costs and benefits for each year results in the "net benefit". Depending oil the absolute size of all costs and benefits for a given year, the net benefit can be positive or negative. The stream of annual net benefits is simply referred to as the net benefit stream.
One can think of the analytical framework ,ff tile IRR calculation as a matrix consisting of tile annual cost and benefit streams.