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