Internal rate of return Formula

Io = Initial investment amount

R = Amount of periodic return on investment

i = Interest rate or rate of return


IRR on an investment is the required return that results in a zero NPV when it is used as the discount rate

Based on IRR rule an investment is acceptable if the IRR exceeds the required return. It should be rejected otherwise

We want this rate to be an “internal” rate in the sense that it only depends on the cash flows of a particular investment, not on rates offered elsewhere