Internal Rate of Return (IRR)

Internal Rate of Return (IRR) defined: 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 particular project equal to zero. Generally speaking, 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. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first. IRR is sometimes referred to as “economic rate of return (ERR)”.

Above is a definition for “Internal Rate of Return (IRR)” from PrivCo’s Private Company Knowledge Bank, the definitive online and e-book guide to private companies and private company deals.

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