Internal Rate of Return - IRR
A primary measure of an investments worth (or value) 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 equals the Net Present Worth - NPW - (Net Present Value) of a project in and out cash flows.
P(i rr ) = F cash_in - F cash_out
= 0 (1)
where
i rr = internal rate of return
F cash_in = future cash flow in ( discounted )
F cash_out = future cash flow out ( discounted)
(1) can be expressed as
P(i rr ) = F0 / (1 + i rr ) 0 + F1 / (1 + i rr ) 1 + F2/(1 + i rr )2+ .... + F n /(1 + i rr ) n
= 0 (2)
where
F 0..n = cash flow in period 0 to n (positive value for cash flow in - negative value for cash flow out)
For a given cash flow equation (2) can be solved by iteration.
Cash Flow Internal Rate of Return Calculator
- money out - negative values
- money in - positive values
Cash Flows - Period
Download and print Present Value of Future Payment chart
Minimum Attractive Rate of Return - MARR
Minimum Attractive Rate of Return - MARR - represents the required or minimum acceptable Internal Rate of Return for a project investment.
Related Topics
• Economics
Engineering economics - cash flow diagrams, present value, discount rates, internal rates of return - IRR, income taxes, inflation.
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