internal rate of return

Definition

The discount rate that makes the net present value of an investment zero—basically the breakeven return that justifies the project. If IRR exceeds your hurdle rate, it's theoretically a go; if not, it's a hard pass.

Example Usage

The project showed a 25% internal rate of return, well above the company's 12% hurdle rate, so it received immediate approval.

Origin

Capital budgeting methodology developed in the 1960s as computational tools enabled complex calculations

Fun Fact

IRR can produce misleading results for projects with unconventional cash flows, which is why savvy analysts always calculate NPV too.

Source: Corporate finance and investment analysis methodology

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