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Finance
Internal Rate of Return
The discount rate that makes the net present value of all cash flows from a project equal to zero.
Investors and managers love IRR because it gives a single percentage number that is easy to compare across projects. Rule of thumb: accept projects where IRR is higher than the cost of capital.
It's the speed at which your investment money grows — the higher the IRR, the faster the money multiplies.
Real world: A new factory project has cash outflows now and big inflows for the next 8 years. If the IRR is 18% and the company's cost of capital is 10%, the project is attractive.
💡 High IRR = a project that makes your money work very hard.