**📅 Date:** ➤ ⌈ [[2025-05-21-Wed〚Fractional Ownership & Watercooler Test ▪IRR& ▪ J Curve〛]]⌋ **💭 Note:** ➤ IRR is more complicated to calculate because it considers the time value; it's a better measure for long-term investments. - 有时候IRR可能是两个值， 比如有些年有正有负的情况下 - ➤==If NPV and IRR conflict, always go with NPV== ➤MOIC no time relevant, no ==time value== ⇩ 🅻🅸🅽🅺🆂 ⇩ **🏷️ Tags**: #💰/Economy **🗂 Menu**: ⌈[[✢ M O C ➣ 05 ⌈M A Y - 2 0 2 5⌉ ✢|2025 - M A Y- MOC]]⌋ ⌈[[✢ L O G ➢ 05 ⌈M A Y - 2 0 2 5⌉ ✢|2025 - M A Y - LOG]]⌋ #👾/Private ➤ ⌈[[💰 L033-Alternative Investment Performance and Returns-J Curve]]⌋ --- ![[Screenshot 2025-05-21 at 22.48.03.png]] ---   ## 1. IRR – Internal Rate of Return年化收益率 #### Definition: IRR is the annualised rate of return that sets the Net Present Value (NPV) of all cash flows (inflows and outflows) to **zero**. #### Formula (conceptually): 0=∑t=0nCt(1+IRR)t Where: - Ct = Cash flow at time t - n = Final period #### What It Measures: - **Time-sensitive** return performance. - Captures _when_ capital is returned: **faster liquidity = higher IRR**. - Useful for comparing investments with different cash flow timings. --- ### IRR: is not the best decision-making matrix, because the IRR could have more than 1 number, especially when there is "-" Error7： ![[IMG_2241.jpeg|#left|200]] ![[IMG_2242.jpeg|#left|300]] #### Common Uses: - Private equity fund performance. - Project finance and VC return benchmarking. #### Limitations: - Can be misleading if used alone — doesn't reflect the total dollar return. - Multiple IRRs can exist if cash flows are irregular. --- ## 💰II. MOIC – Multiple on Invested Capital #### Definition: MOIC = Total Value ReturnedTotal Capital Invested #### What It Measures: - **Time-agnostic** — only looks at the _amount_ returned, not _when_. - Shows how many times the original investment has been returned. - A clean and simple measure of absolute return. #### Example: - If an LP invests $10M and receives $30M in total distributions, the MOIC = 3.0x. #### Common Uses: - Quick snapshot of fund return. - Popular in private equity, VC, and real assets. #### Limitations: - ==Doesn't factor in time value of money.== - Can overstate performance if returns took many years. --- ## III. Key Differences |Metric|Measures|Time Sensitivity|Best Use| |---|---|---|---| |**IRR**|Annualized rate of return|⏱️ Yes|Evaluating investment speed & efficiency| |**MOIC**|Total return multiple|❌ No|Measuring return magnitude| --- ## 📌 Investor Takeaway - **Use Both:** IRR gives insight into _how fast_ returns are generated; MOIC shows _how much_. - A high MOIC with low IRR may suggest capital was tied up too long. - A high IRR but low MOIC may mean early but small gains.