Internal rate of return (IRR) for an investment is the percentage rate earned on each dollar invested for each period it is invested. IRR is also another term people use for interest. Ultimately, IRR gives an investor the means to compare alternative investments based on their yield.
IRR measures the periodic percent gain/loss of an investment taking into account the Initial Investment, any subsequent additions or withdrawals, and the amount of time it was invested for. In other words, if you have uneven returns over several periods, IRR will tell you what the average annual return was.
IRR (internal rate of return) is a useful measure when trying to understand the performance of an investment with multiple payouts over a period of time. It is a means of incorporating the time value of money into the evaluation of an investment. IRR tells us the average annual discount rate at which cash flows, both positive and negative, equal zero.
If the net present value of an investment or project is more than $0, the project is earning more than the interest rate used to discount the future cash amounts. If the net present value of a project is less than $0, the project is earning less than the interest rate used to discount the future cash amounts.
The internal rate of return (IRR) is the discount rate which will give a net present value (NPV) of zero when applied to a series of cash flows.
internal rate of return is the effective interest rate. the word internal might throw you off, it only means that it is internal and not externally including an interest rate. it is also called discounted cash flow.
In more specific terms, the IRR of an investment is the discount rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment.
Internal rate of return
