Internal Rate of Return - IRR

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(i_rr) = F_{cash_in} - F_{cash_out}

        = 0                    (1)

where

P = Present Worth (Value)

i_rr = internal rate of return

F_{cash_in} = future cash flow in (discounted)

F_{cash_out} = future cash flow out (discounted)

 (1) can be expressed as

P(i_rr) = F₀ / (1 + i_rr)⁰ + F₁ / (1 + i_rr)¹ + F₂ /(1 + i_rr)² + .... + F_n /(1 + i_rr)ⁿ

        = 0                    (2)

where

F_0..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

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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. 

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