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Internal Rate of Return

The internal rate of return (IRR) is essentially the rate of return a project generates over its life span. More technically, the IRR is the discount rate at which all negative cash flows (cash outflows) and positive cash flows (cash inflows) of a project sum to zero after being discounted back to the present time (discounting is necessary to adjust for the fact that a dollar today does not have the same value as a dollar at some point in the future). The calculation of a project’s IRR can be a helpful tool in the evaluation of whether or not an entity (corporation, individual, etc.) will receive a rate of return large enough to compensate for the time value of money as well as the ...

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