What is IRR (Internal Rate of Return)?

The internal rate of return (IRR) is a core component of capital budgeting and corporate finance used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.

Businesses use it to determine which discount rate makes the present value of future after-tax cash flows equal to the initial cost of the capital investment.

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