How to compute irr

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How to compute irr

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IRR is a financial metric used to calculate the profitability of an investment by determining the discount rate that makes the net present value of the investment zero.

IRR is calculated by setting the net present value (NPV) of cash flows equal to zero and solving for the discount rate.
It is commonly used to evaluate the potential return of a project or investment.
IRR takes into account the timing and amount of cash flows, providing a more accurate measure of profitability.
Excel and financial calculators have built-in functions to compute IRR.
For example, if an investment requires an initial outlay of $100,000 and generates cash flows of $30,000 per year for 5 years, the IRR can be calculated to determine the annual rate of return.

How to compute irr

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