Internal rate of return

aatechnician

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.

Primble

IRR is when the NPV = 0
NPV is what the current value of the item

aatechnician

there will be some percentage of internal rate of reture. what is that percent of?

SandyHood

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%