Internal Rate Of Return (IRR)
The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.
IRR is sometimes referred to as "economic rate of return (ERR)". Investopedia Says:
You can think of IRR as the rate of growth a project is expected to generate. While the actual rate of return that a given project ends up generating will often differ from its estimated IRR rate, a project with a substantially higher IRR value than other available options would still provide a much better chance of strong growth.
IRRs can also be compared against prevailing rates of return in the securities market. If a firm can't find any projects with IRRs greater than the returns that can be generated in the financial markets, it may simply choose to invest its retained earnings into the market. Related Terms:
Capital Budgeting
Cash Flow
Cost-Benefit Analysis
Discounted Cash Flow - DCF
Interest Rate
Modified Internal Rate of Return - MIRR
Net Present Value - NPV
Present Value Interest Factor - PVIF
Realization Multiple
Return On Investment Capital - ROIC IRR
In currencies, this is the abbreviation for the Iranian Rial. Investopedia Says:
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. Related Terms:
Currency
FOREX
Hard Currency
Money IRR
In currencies, this is the abbreviation for the Iranian Rial. Investopedia Says:
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. Related Terms:
Currency
FOREX
Hard Currency
Money |