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Question
What is the internal rate of return?
Step-by-Step Solution
Verified Answer
The internal rate of return (IRR) is a statistical tool used for various financial research. It is used to define the profitability of potential investments. A discount rate brings all future cash flows net present values (NPV) to zero.
1Step 1: Uses of IRR
The anticipated growth rate of project investment is represented by the internal rate of return (IRR) of a project. It can be compared to the rate of return attained through the stock market or other project investments.
2Step 2: Calculation of IRR
It is calculated by the difference between the initial investment value and the net present value of future cash flows, dividing by the original amount and multiplying by 100.