ABSTRACT
Internal rate of return (IRR) is another popular method of determining whether a project should be undertaken. IRR is similar to the NPV (see tip #319), but while NPV uses a selected discount rate to calculate the present value of future cash flows, IRR considers the discount rate to be unknown. In fact, the same equation is used for both approaches, but, in general terms, the IRR is the discount rate that causes the NPV to equal zero. In other words, the NPV equation is set equal to zero and solved for r.
