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Tuesday, June 7, 2011

Internal Rate of Return (IRR) Examples

Definition: The Internal Rate of Return (IRR) method is used in capital budgeting to compare the profitability of investments. It is also known as the discounted cash flow rate of return (DCFROR) or the rate of return (ROR). IRR is the discount rate that gives a net present value of zero.

Formula:
IRR = lower discount rate + (NPV at lower % rate / distance between 2 NPV) * (Higher % rate - Lower

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