Internal Rate of Return (IRR)

(1) The discount rate that equates the present value of future cash flows with the market value of a financial instrument or the present-valued cost of an investment. More than one internal rate of return may be consistent with a given set of cash flows. (2) A compound interest rate at which the net present value of cash inflows from a project is equal to the net present value of cash outlays. Net present value analysis and real option analysis are increasingly replacing internal rate of return calculations as the basis for capital expenditures.

Glossary * I