Internal rate of return

Internal rate of return (IRR) is a method of calculating an investment's rate of return. The term internal refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or financial risk.

The method may be applied either ex-post or ex-ante. Applied ex-ante, the IRR is an estimate of a future annual rate of return. Applied ex-post, it measures the actual achieved investment return of a historical investment.

It is also called the discounted cash flow rate of return (DCFROR)^[1] or yield rate.^[2]

^ Project Economics and Decision Analysis, Volume I: Deterministic Models, M.A.Main, Page 269
^ Kellison, Stephen G. (2009). The theory of interest (Third ed.). Boston: McGraw-Hill Irwin. pp. 251–252. ISBN 978-0-07-338244-9. OCLC 182552985.

[main269-1] Project Economics and Decision Analysis, Volume I: Deterministic Models, M.A.Main, Page 269

[:0-2] Kellison, Stephen G. (2009). The theory of interest (Third ed.). Boston: McGraw-Hill Irwin. pp. 251–252. ISBN 978-0-07-338244-9. OCLC 182552985.

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