What Is The Internal Rate Of Return (IRR)

The internal rate of return (IRR) refers to the actual expected achievement of the project investment profit Rate. In essence, it can make project The discount rate when the net present value of is equal to zero.

IRR satisfies the following equation: the general method for calculating IRR is the successive test method. When the project is put into operation, the net cash flow is ordinary In the form of annuity, the present value coefficient of annuity can be directly used to calculate the internal rate of return. The formula is: (P / A, IRR, n) = 1 / NCF

The advantages of internal rate of return: it can directly reflect the actual income level of investment projects from a dynamic point of view, and is not affected by the level of industry benchmark rate of return. Its disadvantage is that the calculation process is complex, especially when there is a large amount of additional investment in the operation period, it may lead to multiple IRRs, or high or low, and lack of practical significance. Only when the internal rate of return index is greater than or equal to the industry benchmark rate of return or the cost of capital investment project has financial feasibility.