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Economics

Internal Rate of Return (IRR)

Quick fact

The IRR is the discount rate at which the Net Present Value of all cash flows equals zero. For a simple investment of $100 today returning $110 next year, the IRR is 10%—exactly the return you earned.

Why this is interesting

You invest in a project today, expecting returns over the next few years. But how do you decide if it's truly a good deal? The Internal Rate of Return (IRR) gives you a single number—the average annual return—that instantly tells you whether you are beating the market or your cost of borrowing.