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. 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.
Internal rate of return 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).
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 judgment basis. For them, the internal rate of return indicator is an indispensable tool.
Internal rate of return (IRR) is a macro-conceptual indicator, which is usually understood as the ability of project investment income to resist currency depreciation and inflation. For example, the internal rate of return is 65,438+00%, which means that the project can bear the maximum currency depreciation of 65,438+00% or inflation of 65,438+00% every year during its operation.
At the same time, the internal rate of return also indicates the ability to resist risks during the project operation. For example, the internal rate of return is 10%, which means that the maximum risk that the project can bear every year during the operation is 10%. In addition, if the project needs loans, the internal rate of return can represent the maximum allowable interest rate. If the loan interest is included in the project economic accounting, it means the maximum floating value of the loan interest in the future project operation.