Internal Rate of Return (IRR)

The internal rate of return (IRR) is a tool used in financial analysis to gauge the potential profitability of investments. By determining the discount rate at which the net present value (NPV) becomes zero in a discounted cash flow analysis, IRR provides insight into investment desirability. Although it should be noted that IRR does not represent the project’s actual monetary value, but rather signifies its annual return when NPV equals zero. Generally, higher IRR values indicate more favorable investment prospects.