Internal rate of return (IRR)

[Lorenzo Incarnato]

1 Abstract: (13/02)

One of the most important jobs in any company management team is deciding which project to fund and which project to ignore. The Internal Rate of Return (IRR) is a key component of capital budgeting and corporate finance for estimating and evaluating the profitability of potential investments. It is defined as the discount rate (%) that makes the Net Present Value (NPV) equal to zero in a discounted cash flow analysis. This method is called internal because the formula provides a rate that depends only on the project, more precisely on the cash flows of the project, and does not depend on external factors such as market interest rates as in the case in calculating the NPV. [116 words -- continue...]

2 Importance of the discount rate: time value of money

3 Internal Rate of Return: definition and formula

4 In which project is it worth investing in according to IRR?

5 Application: Internal rate of return in practice

6 Internal Rate of Return (IRR) vs Return on Investment (ROI) vs Net Present Value (NPV)

7 Limitations

8 Bibliography