Calculate Internal Rate of Return
The Internal Rate of Return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments. It is the discount rate that makes the Net Present Value (NPV) of all cash flows from a project equal to zero.
In project selection, if a project's IRR is higher than the company's cost of capital (or the minimum acceptable hurdle rate), the project is considered profitable. When comparing multiple projects, the one with the highest IRR is generally preferred.
NPV calculates the absolute dollar value a project will add to a company's wealth. IRR calculates the percentage rate of return the project is expected to generate. Both metrics are used together to evaluate investment opportunities.
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