Internal rate of return

aatechnician
aatechnician Registered Posts: 4 New contributor ?
can any one tell me in a simple words what do you mean by internal rate of return. i could not undarstand from book . and net present value also.

Comments

  • Primble
    Primble Registered Posts: 734
    IRR is when the NPV = 0
    NPV is what the current value of the item
  • aatechnician
    aatechnician Registered Posts: 4 New contributor ?
    there will be some percentage of internal rate of reture. what is that percent of?
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    If you can borrow money from the bank at 10% interest for a year, that wuld be your cost of capital (10%)
    If you have a business idea that will earn 20% on your investment in a year, than you may well feel it is worth it to go ahead.

    In terms of the terminology
    10% is the discount rate
    20% is the internal rate of return

    And even if your cost of borrowing was to increase it would still be worthwhile until the cost of borrowing was as high as 20%
    Sandy
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    www.sandyhood.com
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