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Hello everyone, I know how to perform the calculations but I don not actually understand what the IRR means. I have researched and some websites say it is the interest rate which would cause the project under consideration to break even. Others say the IRR is the expected rate of return. Aren’t those two different things? Please help!!!
The IRR (internal rate of return) is the discount rate at which (for the cash flows in consideation) the net present value of a given project is equal to zero. It is therefore a useful measure which can be compared to the marginal finance costs anticipated to be needed to fund a project. From a financial point of view if the IRR is greater than the marginal finance cost of undertaking a project, then the project should be undertaken. I hope this at least partially answers your question.
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