Internal Rate of Return

Internal rate of return (IRR) is the discount rate often used in capital budgeting that makes the net present value of all cash flows from a project equal to zero. The higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. IRR is sometimes referred to as "economic rate of return (ERR)".