Internal rate of return (IRR) is the discount rate that the total present value of capital inflow is equal to the total present value of capital flow and the net present value is equal to zero. If the computer is not used, the internal rate of return will be tried with several discount rates until the discount rate with net present value equal to or close to zero is found. Internal rate of return (IRR) is the expected rate of return on investment and the discount rate that makes the net present value of investment projects equal to zero.

It is the expected rate of return of an investment, and the bigger the index, the better. Generally speaking, the project is feasible when the internal rate of return is greater than or equal to the benchmark rate of return. The sum of discounted cash flows of investment projects in each year is the net present value of the project, and the discount rate when the net present value is zero is the internal rate of return of the project. In the project economic evaluation, according to the different levels of analysis, the internal rate of return can be divided into financial internal rate of return (FIRR) and economic internal rate of return (EIRR).

Extended data:

Internal rate of return calculation steps

(1) On the basis of calculating the net present value, if the net present value is positive, the higher discount rate in the net present value calculation should be adopted for calculation until the calculated net present value is close to zero.

(2) Continue to increase the discount rate until the net present value is negative. If the negative value is too large, reduce the discount rate, and then calculate the negative value close to zero.

(3) According to the discount rate of adjacent positive and negative NPV close to zero, the internal rate of return is obtained by linear interpolation.

Baidu Encyclopedia-Internal Rate of Return