Internal Rate of Return - IRR - the break-even interest rate
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(irr) = Fcash_in - Fcash_out
= 0 (1)
irr = internal rate of return
Fcash_in = future cash flow in (discounted)
Fcash_out = future cash flow out (discounted)
(1) can be expressed as
P(irr) = F0 / (1 + irr)0 + F1 / (1 + irr)1 + F2 /(1 + irr)2 + .... + Fn /(1 + irr)n
= 0 (2)
F0..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
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.