Section 3
Internal Rate of Return
By Boundless
![Thumbnail](../../../../../../figures.boundless-cdn.com/12084/square/220px-irr1-grieger.jpeg)
IRR is a rate of return used in capital budgeting to measure and compare the profitability of investments; the higher IRR, the more desirable the project.
![Thumbnail](../../../../../../figures.boundless-cdn.com/12094/square/irr-20r.jpg)
Given a collection of pairs (time, cash flow), a rate of return for which the net present value is zero is an internal rate of return.
![Thumbnail](../../../../../../figures.boundless-cdn.com/12572/square/klk-ir1a.jpg)
The IRR method is easily understood, it recognizes the time value of money, and compared to the NPV method is an indicator of efficiency.
![Thumbnail](../../../../../../figures.boundless-cdn.com/12100/square/50px-exclusive-investments.jpg)
IRR can't be used for exclusive projects or those of different durations; IRR may overstate the rate of return.
![Thumbnail](../../../../../../figures.boundless-cdn.com/12577/square/klk-ir3l.jpg)
When cash flows of a project change sign more than once, there will be multiple IRRs; in these cases NPV is the preferred measure.
![Thumbnail](../../../../../../figures.boundless-cdn.com/12590/square/16a139ae9414b79713f0a9288f.jpg)
The MIRR is a financial measure of an investment's attractiveness; it is used to rank alternative investments of equal size.