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Internal rate of return


Internal rate of return is a discounted rate that makes NPV equal to zero. Internal rate of return simply define as IRR. IRR determines that if any project will be accept or reject. There have a certain condition on IRR that determines that the project will accept or not.



 Let initial investment 100 dollar, after a one year expected to gain 130 dollar.


NPV= Negative value of initial investment + FV/(1+r)

= -100+130/(1+.08) Here, r is 8 percent

=20.37

Here, NPV is greater than zero

Project should accept.

Again let us calculate IRR,

IRR makes NPV is equal to zero.

NPV = -100 + 130/(1+R)




0 = -100 + 130/(1+R)

R = .30

30 percent

Hence, R is greater than r

Hence, project is accepted


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