This is the rate of return pursued by investment, and the higher 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 present value of annual cash flow of an investment project is the net present value of the project. When the net present value is zero, the discount rate 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 is divided into financial internal rate of return (FIRR) and economic internal rate of return (EIRR).
At present, stocks, funds, gold, real estate, futures and other investment methods have been familiar and used by many financial planners. However, many people's understanding of the effectiveness of investment is limited to the absolute amount of income, and there is no scientific basis for judgment. For them, internal rate of return (IRR) is an indispensable tool.
What is the internal rate of return?
Internal rate of return refers to the discount rate that can make the present value of future net cash flow equal to the present value of original investment or make the net present value of investment projects zero. If the internal rate of return of the project is greater than or equal to the expected minimum rate of return on investment, the net present value is greater than or equal to zero, and the profitability index is greater than or equal to 1, it should be adopted. If the internal rate of return of the project is less than the expected minimum rate of return on investment, the net present value is less than zero, and the profitability index is less than 1, it should be abandoned.