# Internal Rate Of Return - IRR

- The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.

IRR is sometimes referred to as "economic rate of return (ERR)".You can think of IRR as the rate of growth a project is expected to generate. While the actual rate of return that a given project ends up generating will often differ from its estimated IRR rate, a project with a substantially higher IRR value than other available options would still provide a much better chance of strong growth.

IRRs can also be compared against prevailing rates of return in the securities market. If a firm can't find any projects with IRRs greater than the returns that can be generated in the financial markets, it may simply choose to invest its retained earnings into the market.

*Investment dictionary.
Academic.
2012.*

### Look at other dictionaries:

**internal rate of return**— vidinė grąžos norma statusas T sritis turto vertinimas apibrėžtis Diskonto norma, kuriai esant investicijų būsimų pinigų srautų dabartinė vertė yra lygi investicijų objekto įsigijimo sąnaudoms. atitikmenys: angl. internal rate of return ryšiai:… … Lithuanian dictionary (lietuvių žodynas)**internal rate of return**— index used to estimate is an investment is worthwhile according to its relation to expected interest during the life of the investment … English contemporary dictionary**Portfolio internal rate of return**— The rate of return computed by first determining the cash flows for all the bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows equal to the market value of the portfolio. The New York… … Financial and business terms**portfolio internal rate of return**— The rate of return computed by first determining the cash flows for all the bonds in the portfolio and then finding the interest rate that will make the present value of the cash flows equal to the market value of the portfolio. Bloomberg… … Financial and business terms**rate of return**— Calculated as the (value now minus value at time of purchase) divided by value at time of purchase. For equities ( equity), we often include dividends with the value now. See also: return, annual rate of return. Bloomberg Financial Dictionary * * … Financial and business terms**rate of return**— The annual income earned from the investment of resources in a commercial or economic activity, usually expressed as a percentage of the original investment. In a discounted cash flow appraisal, for example, the rate of return may be expressed as … Accounting dictionary**accounting rate of return**— ➔ return1 * * * accounting rate of return UK US noun [C] (plural accounting rates of return) (ABBREVIATION ARR) ACCOUNTING ► the amount of money you invest in a project divided by the amount of profit you expect to get from it. Accounting rates … Financial and business terms**required rate of return**— The rate of return, usually expressed as a percentage, that an organization determines is necessary before an investment can be regarded as profitable and therefore justified. In a discounted cash flow appraisal the required rate of return may be … Accounting dictionary**Minimum acceptable rate of return**— In business and engineering, the minimum acceptable rate of return, often abbreviated MARR, or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the… … Wikipedia**Financial Management Rate Of Return - FMRR**— A metric used to evaluate the performance of a real estate investment and pertains to a real estate investment trust (REIT). REITs are shares offered to the public by a real estate company or trust that holds a portfolio of income producing… … Investment dictionary**Dollar-weighted rate of return**— Also called the internal rate of return, the interest rate that will make the present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value of the portfolio equal to the initial market value of… … Financial and business terms