What is internal rate of return?

The internal rate of return is the discount rate when the total present value of capital inflows is equal to the total present value of capital outflows and the net present value is equal to zero.

If you do not use an electronic computer, the internal rate of return needs to be calculated using several discount rates until you find the discount rate where the net present value is equal to zero or close to zero.

The internal rate of return is the rate of return that an investment aspires to achieve. It is the discount rate that can make the net present value of the investment project equal to zero. It is the rate of return an investment aspires to achieve, and the bigger the indicator, the better. Generally speaking, the project is feasible when the internal rate of return is greater than or equal to the benchmark rate of return.

The sum of the discounted present values ??of the cash flows of the investment project in each year is the net present value of the project. The discount rate when the net present value is zero is the internal rate of return of the project. In project economic evaluation, depending on the level of analysis, the internal rate of return can be divided into financial internal rate of return and economic internal rate of return.