internal rate of return (IRR) definition

Internal rate of return (IRR) is the rate of growth that a project or investment is expected to create, expressed as a percentage, over a specified term. IRR is, in essence, the theoretical interest rate earned by the project, which makes it handy when comparing one investment opportunity to another. The higher the IRR the greater the value of the project.

Technically, IRR is the discount rate that generates a net present value of zero for a series of future cash flows. The mathematical formula is complex but most spreadsheet programs and financial calculators will quickly and easily calculate IRR.

One of the disadvantages of the IRR calculation is that it presumes that all cash flows will be reinvested in the projection at the same rate.

Search again for the modified internal rate of return.