Internal Rate of Return (IRR)

Posted on September 4, 2009 by


There are many things to consider when making the decision whether or not to invest in a particular project. Internal Rate of Return (IRR) is a financial valuation technique that can be applied to a potential project. The IRR examines the percentage rate of return on an investment. So all things being equal, a return of 30% on the investment into a project is more desirable than a return of 5% from a project. IRR is similar to the financial valuation technique of Net Present Value (NPV). IRR is the percentage obtained when NPV is set to 0. Also see the earlier postings of Payback Period (posted March 16), Cost-Benefit Analysis (posted May 7, 2009), and Net Present Value (NPV) for Project Managers (posted September 3, 2009).