The IRR is the discount rate that makes a project or investment's Net Present Value (NPV) equal to zero.
For instance, consider a renewable energy company evaluating a project that requires an initial investment of $200,000, with expected annual cash flows of $50,000 over the next six years.
To determine the IRR for this project, the NPV is computed for different rates on a trial-and-error basis using a financial calculator or an Excel spreadsheet.
Based on these projected cash flows, if the company proceeds with the investment, it can expect an annual return of 12.978%.
From Chapter 7:
Now Playing
Capital Budgeting
39 Views
Capital Budgeting
239 Views
Capital Budgeting
128 Views
Capital Budgeting
97 Views
Capital Budgeting
286 Views
Capital Budgeting
143 Views
Capital Budgeting
85 Views
Capital Budgeting
52 Views
Capital Budgeting
69 Views
Capital Budgeting
262 Views
Capital Budgeting
144 Views
Capital Budgeting
54 Views
Capital Budgeting
156 Views
Capital Budgeting
46 Views
Capital Budgeting
48 Views
See More
Copyright © 2025 MyJoVE Corporation. All rights reserved