Internal Rate of Return
- AKA: IRR, Economic Rate of Return, ERR.
- See: Interest Rate, Rate of Return, Capital Budgeting, Economic Profit, Investment, Discounted Cash Flow, Effective Interest Rate.
- (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/Internal_rate_of_return Retrieved:2015-3-21.
- The internal rate of return (IRR) or economic rate of return (ERR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. It is also called the discounted cash flow rate of return (DCFROR). In the context of savings and loans, the IRR is also called the effective interest rate. The term internal refers to the fact that its calculation does not incorporate environmental factors (e.g., the interest rate or inflation).
- Project Economics and Decision Analysis, Volume I: Deterministic Models, M.A.Main, Page 269
- QUOTE: The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.