Internal rate of return (IRR)

The Internal Rate of Return (IRR) – this is the discount rate at which the Present Value of inflows equals the Present Value of outflows. It is internal because it is calculated independently of the cost of borrowed funds. It represents the maximum rate of interest that could be paid if all funds for the investment were borrowed and the investment was to break even. It also identifies the average return on the extra capital required to undertake the investment.