Internal Rate of Return - IRR
Internal Rate of Return - IRR - the project break-even interest rate
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A primary measure of an investments worth is based on yield and known as the internal rate of return - IRR. The internal rate of return can be defined as the break-even interest rate which equates the Net Present Worth - NPW - (Net Present Value) of a projects cash flow in and out.
PW(irr) = PWcash_in - PWcash_out
= 0 (1)
where
PW = Present Worth
irr = internal rate of return
(1) can be expressed as
PW(irr) = F0 / (1 + irr)0 + F1 / (1 + irr)1 + F2 /(1 + irr)2 + .... + Fn /(1 + irr)n
= 0 (2)
where
F = cash flow
For a given cash flow equation (2) can be solved by iteration.
Internal rate of Return - IRR - of a Cash Flow - Online Calculator
- money out - negative values
- money in - positive values
Minimum Attractive Rate of Return - MARR
Minimum Attractive Rate of Return - MARR - represents the required or minimum Internal Rate of Return for a project investment.
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Related Topics
- Economics - Engineering economic concepts - cash flow diagrams, discount rate, internal rate of return - IRR, income taxes, inflation
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Related Documents
- Cash Flow Diagrams - Time and value of future money
- Discount Rate - The Present Value of future money
- Discrete Compounding Formulas - Discrete compounding formulas with discrete payments
- Interest Formulas - Single cash flow formulas
- Interest Rate - The cost of money
- Net Present Worth - NPW - of a Stream of Payments - Net Present Worth - NPW - or Value of a stream of payments
