= IRR

An interest rate that gives a net present value of zero when applied to a projected cash flow of an asset, liability, or financial decision. This interest rate, where the present values of the cash inflows and outflows are equal, is the internal rate of return for a project under consideration, and the decision to adopt the project would depend on its size compared with the cost of capital. The approximate IRR can be computed manually by interpolation but most computer spreadsheet programs now include a routine enabling the IRR to be computed quickly and accurately. The IRR technique suffers from the possibility of multiple solution rates in some circumstances. If it suggests a different decision to that obtained from net present value the decision should not be taken, because net present value is a superior decision tool.

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