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Frank is right.

The short answer is that you need to compare the IRR to the average Cost of capital

The cost of capital is a term used in the field of financial investment to refer to the cost of a company's funds (both debt and equity), or, from an investor's point of view "the shareholder's required return on a portfolio of all the company's existing securities".[1] It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.
It is an average of the yield of the company's bonds and the implied return on its equity shares which should be higher than that of bonds but is harder to estimate (the yields on bonds is just a market quotation).

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Feb 25th, 2011 at 08:19:28 AM EST
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In my experience (outside the financial services sector, but within a large publicly quoted global enterprise) the benchmark was a standardised cost of funds derived from the cost of bank borrowings as investor funds were rarely sought for individual projects.  The latter really only applied when evaluating the cost benefit of a significant business acquisition or merger which might require raising funds directly from new investors or existing shareholders..

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 25th, 2011 at 08:37:14 AM EST
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