1. The calculation formula of internal rate of return is as follows:

In the formula: FIRR——financial internal rate of return;

CI——cash inflow

CO——Cash outflow

(CI-CO)t——Net cash flow in period t

n——Project calculation period

(1) On the basis of calculating the net present value, if the net present value is positive, this net present value must be used to calculate the internal rate of return. Calculate at a higher discount rate until the calculated positive net present value is close to zero.

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

(3) Based on the discount rates of two adjacent positive and negative net present values ??close to zero, use linear interpolation to obtain the internal rate of return. :

Internal Rate of Return (IRR) is the discount rate when the total present value of capital inflows is equal to the total present value of capital outflows and the net present value is equal to zero. If you do not use a computer, the internal rate of return needs to be calculated using several discount rates until you find the discount rate at which the net present value is equal to zero or close to zero. The internal rate of return is the rate of return that an investment aspires to achieve, and it is the discount rate that can make the net present value of the investment project equal to zero.

It is the rate of return that an investment aspires to achieve. The bigger the indicator, 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 the discounted present values ??of the investment project's cash flows in each year is the project's net present value, and the discount rate when the net present value is zero is the project's internal rate of return. In project economic evaluation, depending on the level of analysis, the internal rate of return can be divided into financial internal rate of return (FIRR) and economic internal rate of return (EIRR).

At present, investment methods such as stocks, funds, gold, real estate, and futures have been familiar and used by many financial managers. However, many people's understanding of the effectiveness of investment is limited to the absolute amount of income, lacking scientific basis for judgment. For them, the internal rate of return (IRR) indicator is an indispensable tool.

Reference: Baidu Encyclopedia-Internal Rate of Return