From the course: Investment Evaluation

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What is IRR?

What is IRR? - Microsoft Excel Tutorial

From the course: Investment Evaluation

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What is IRR?

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- Yes, NPV is awesome, however there are also some other common measures that are used along side NPV to determine whether an investment or project will be worth your time and money. The first one I wanna show you is the internal rate of return, lovingly known as IRR. The IRR is a discount rate that sets the NPV of a project equal to zero. It allows us to see the percentage rate that will be earned for a given set of cash flows. This method incorporates the time value of money, just like the NPV, it's often used when there's a lack of clarity or consensus within the company as to what discount rate should be used in the NPV calculation. So again, IRR is a discount rate that sets NPV equal to zero, when our net present value is zero, we'll know that we'll get as least as high a return as our discount rate. So, if the IRR is set at a desirable percentage and we get a positive or zero NPV, then we know that the project is probably a good investment. It's generally considered a good…

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