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# Internal Rate of Return (IRR)

AnalyticsTrade Team Last updated on 26 Apr 2023

# Internal Rate of Return (IRR)

Internal Rate of Return (IRR) is a financial metric used to measure the profitability of an investment or project. It is the rate at which the present value of all future cash flows from a project or investment equals the initial cost of the investment. In other words, it is the discount rate that makes the net present value (NPV) of all cash flows from a project or investment equal to zero. IRR is used to compare the profitability of different investments or projects and to determine the optimal capital structure for a company.

## History of Internal Rate of Return

The concept of Internal Rate of Return (IRR) was first developed by French mathematician Louis Bachelier in 1900. It was later popularized by American economist Irving Fisher in the 1930s. IRR has since become a widely used financial metric for evaluating the profitability of investments and projects. It is used by companies, investors, and financial analysts to compare the profitability of different investments or projects and to determine the optimal capital structure for a company.

## Comparison Table

Metric Description
Net Present Value (NPV) The present value of all future cash flows from a project or investment.
Internal Rate of Return (IRR) The discount rate that makes the net present value (NPV) of all cash flows from a project or investment equal to zero.

## Summary

Internal Rate of Return (IRR) is a financial metric used to measure the profitability of an investment or project. It is the rate at which the present value of all future cash flows from a project or investment equals the initial cost of the investment. IRR is used to compare the profitability of different investments or projects and to determine the optimal capital structure for a company. For more information about this term, you can visit websites such as Investopedia, The Balance, and Investing Answers.

• Net Present Value (NPV)
• Discounted Cash Flow (DCF)
• Payback Period
• Return on Investment (ROI)
• Cost of Capital
• Capital Budgeting
• Net Operating Income (NOI)
• Cash Flow
• Time Value of Money (TVM)
• Weighted Average Cost of Capital (WACC)