Homework Help

What is Internal Rate of Return?

user profile pic

Mizdee | Student, Undergraduate | (Level 1) Valedictorian

Posted April 23, 2013 at 8:55 PM via web

dislike 2 like

What is Internal Rate of Return?

1 Answer | Add Yours

user profile pic

sciencesolve | Teacher | (Level 3) Educator Emeritus

Posted April 27, 2013 at 4:26 PM (Answer #1)

dislike 1 like

The definition of internal rate of return specifies that it is the interest rate at which the negative cash flow of investment is equal to the positive cash flow.

The internal rate of return is used as an indicator to predict if an investment is profitable, hence, for an investment to be economically profitable, the established cost of capital of investment needs to be smaller than the internal rate of return.

The selection of a profitable project, among others, depends on the internal rate of return, hence, the project whose internal rate of return exceeds the other internal rates of return, will be prioritized.

Join to answer this question

Join a community of thousands of dedicated teachers and students.

Join eNotes