An Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of a project equal to zero. In other words, it is the rate at which the present value of the project’s cash inflows equals the present value of the project’s cash outflows.
The IRR is an important financial metric used to evaluate the profitability of an investment and compare it to other potential investments. It is widely used to make investment decisions in various sectors, like finance, real estate, and infrastructure projects. Historically, the IRR method has been used for centuries, with its roots traced back to the concept of Net Present Value (NPV) introduced by Irving Fisher in 1930.