WHAT DOES THE INTERNAL RATE OF RETURN ( IRR) MEAN ON A PROJECT?
CITYLIFE INTERNATIONAL
The Internal Rate of Return (IRR) is the rate at which each invested dollar is projected to grow for each period it is invested. IRR is calculated using the same concept as net present value (NPV), except it sets the NPV equal to zero. IRR is ideal for analyzing capital budgeting projects to understand and compare potential rates of annual return over time.
It differs from other metrics in that it accounts for the concept of the “time value of money”, or the fact that a dollar received and reinvested elsewhere today is worth more than a dollar expected to be received and reinvested next year.
The IRR is one of the best ways for an investor to compare various investments based on their yield while holding other variables constant.
For a more detailed explanation of how the IRR is calculated visit IRR EXPLAINED
To see more investment terms go to our Glossary HERE.
