# internal rate of return

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Related to internal rate of return: Net present value, Payback period

## Internal rate of return (IRR)

Dollar-weighted rate of return. Discount rate at which net present value (NPV) of an investment is zero. The rate at which a bond's future cash flows, discounted back to today, equal its price.

## Internal Rate of Return

The discount rate at which the cash inflow on an investment equals its cash outflow. That is, the internal rate of return is the return necessary for the present value of an investment to equal what one spends in making the investment. Importantly, the internal rate of return accounts for inflation. See also: Yield to maturity.

## internal rate of return (IRR)

The rate of discount on an investment that equates the present value of the investment's cash outflows with the present value of the investment's cash inflows. Internal rate of return is analogous to yield to maturity for a bond.

## internal rate of return

see DISCOUNTED CASH FLOW.

## internal rate of return

see DISCOUNTED CASH FLOW.

## internal rate of return

The annual rate of earnings on an investment equates the value of cash returns with the cash invested,taking into consideration the power of compounding interest.The following formula requires a trial-and-error method for solution. The fallacy with the method is its assumption that all cash flows are reinvested at the internal rate of return.

Using this formula,CF is the cash flow in each period,with one subpart of the formula for each investment year until you reach n,the final year of the investment.You have to solve for R, the annual rate, by trial and error.

References in periodicals archive ?
Having underlined this, IRR index is a better instrument--from a mathematical point of view--than NPV, but it is, itself, less than perfect; because, in first place, the imperfections that 'plague' IRR are structural rather than (merely) operational, being generated by the very theory this index is build upon--according to which internal rate of return exist--and, therefore, is useful--only if NPV index is used under certain conditions (e.
For this to ever be actually rectified, economist perceived the need to overhaul premises of IRR model, the goal being to enhance reflecting capability of(computed values of)internal rate of return as to profitability rate of investment projects in general; the results of this demarche is--arguably--index which goes by the name of modified internal rate of return (Modified IRR--MIRR).
That aside, the insidious problem is that it is not immediately obvious from the calculated internal rate of return when these problems are present.
an internal rate of return greater than -1) need not exist at all for an equation even if sign changes occur.
Sturm's Theorem gives the possible number of distinct internal rates of return, while Budan's Theorem counts each multiple internal rate of return separately.
In fact, in many cases, internal rate of returns are approaching double digits.

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