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# Internal Rate of Return - IRR

## Internal Rate of Return (IRR) - the break-even interest rate.

A primary measure of an investments worth (or value) is based on yield and known as the internal rate of return - IRR.

The internal rate of return can be defined as the break-even interest rate which equals the Net Present Worth - NPW - (Net Present Value) of a project in and out cash flows.

P(irr) = Fcash_in - Fcash_out

= 0                    (1)

where

P = Present Worth (Value)

irr = internal rate of return

Fcash_in = future cash flow in (discounted)

Fcash_out = future cash flow out (discounted)

(1) can be expressed as

P(irr) = F0 / (1 + irr)0 + F1 / (1 + irr)1 + F2 /(1 + irr)2 + .... + Fn /(1 + irr)n

= 0                    (2)

where

F0..n = cash flow in period 0 to n (positive value for cash flow in - negative value for cash flow out)

For a given cash flow equation (2) can be solved by iteration. ### Cash Flow Internal Rate of Return Calculator

• money out - negative values
• money in - positive values

Cash Flows - Period ### Minimum Attractive Rate of Return - MARR

Minimum Attractive Rate of Return - MARR - represents the required or minimum acceptable Internal Rate of Return for a project investment.

## Related Topics

• ### Economics

Engineering economics - cash flow diagrams, present value, discount rates, internal rates of return - IRR, income taxes, inflation.

## Related Documents

• ### Accounting Rate of Return

Net income vs net investment.
• ### Cash Flow Diagrams

The future value of money.
• ### Contract Types

Commonly used engineering and construction contracts.
• ### Discrete Compounding Cash Flow Formulas

Discrete payments compounding equations and online calculators .
• ### Interest Formulas

Future value of single cash flow.
• ### Interest Rate

Interest rate is the cost of money.
• ### Net Present Worth (NPW) of a Cash Stream

The value of a stream of payments is called the Net Present Worth (NPW).
• ### Present Value

The value of money in the future is the Present Value.
• ### Uniformat

The ASTM E1557 UNIFORMAT II Standard.
• ### Value Engineering

Improved value by enhanced function.

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## Citation

• The Engineering ToolBox (2008). Internal Rate of Return - IRR. [online] Available at: https://www.engineeringtoolbox.com/internal-rate-of-return-irr-d_1235.html [Accessed Day Month Year].

Modify the access date according your visit.

9.27.11