Incremental Internal Rate of Return

Incremental internal rate of return

Internal rate of return (I.R.R.) on the incremental investment from choosing a larger instead of a smaller project.

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Incremental Internal Rate of Return

When analyzing two investments, one more expensive than the other, the internal rate of return on the difference (increment) in their prices; that is, a measurement of the extra potential return of the more expensive investment. An internal rate of return is an estimate for the potential yield on an investment; calculating the incremental internal rate of return is a tool to help an investor decide whether the added risk of increased expenditure is worth the potential reward. Generally, if the incremental internal rate of return is higher than the minimum acceptable rate of return, the more expensive investment is considered the better one.