Article

Internal Rate of Return(IRR)
June 07 , 2012

The IRR is the discount rate at which the NPV for a project equals zero for a series of cash flows. This rate means that the present value of the cash inflows for the project would equal the present value of its outflows. Like the net present value (NPV) it is a discounted cash flow approach (DCF) to valuation and investing. The difference is that IRR is the yield of an investment expressed in percentage  terms while NPV is expressed in absolute value (rupees).

Remember:

  • The IRR is the break-even discount rate.
  • The IRR is found by trial and error.

The formula for calculation is

where r = IRR

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