Internal Rate of Return (IRR)

The Internal Rate of Return of a project is the discount rate which makes it NPV to zero. The IRR is compared with RRR or cost of capital. If the IRR exceeds the required return, the project is accepted; if not the project is rejected

internal rate of return formula


Illustration 1: Consider the following cash flows and calculate IRR.

internal rate of return irr example

irr solved example(Acceptance Criterion: The higher the IRR the better the project)