What is IRR and how to calculate?

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IRR stands for Internal Rate of Return. It is a financial metric used to evaluate the profitability of an investment.

IRR is the discount rate that makes the net present value (NPV) of cash flows from an investment equal to zero.
It is used to assess the potential return of an investment and compare it with other investment opportunities.
IRR takes into account the timing and amount of cash flows generated by an investment.
To calculate IRR, you need to know the initial investment amount and the expected cash flows over a period of time.
IRR can be calculated using mathematical formulas or financial software.
If the IRR is higher than the required rate of return, the investment is considered profitable.
Example: If an investment requires an initial outlay of $10,000 and generates cash flows of $3,000 per year for 5 years, the IRR can be calculated to determine its profitability.

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