Valuation and investment
IRR (internal rate of return)
The discount rate at which NPV is exactly zero.
Last reviewedWhat does IRR (internal rate of return) mean?
The internal rate of return is the discount rate that makes a project's NPV equal to zero. A project is attractive if its IRR is above the hurdle rate. IRR can mislead when comparing projects of very different sizes or when cash flows change sign more than once, so check NPV as well.
Where does it come up in case interview prep?
- Sovereign wealth funds, national visions, trends and casesLesson in Government, public sector and non-profits
- Mergers, acquisitions, and due diligenceLesson
- Investment and capital project decisionsLesson
- How private equity and venture capital funds workLesson in Private equity and venture capital
- LBO returns and fund economicsLesson in Private equity and venture capital
- Oil and gas players, trends 2024 to 2026, and how to crack the casesLesson in Oil and gas
- Power players, trends 2024 to 2026, and how to crack the casesLesson in Power, utilities and renewables
- How construction and real estate work: who builds, who owns, who paysLesson in Construction, real estate and infrastructure
Related terms
- Net present value (NPV)Today's value of all future cash flows, minus the upfront investment.
- Discount rate and hurdle rateThe rate used to turn future cash into today's value.
- MOIC (multiple on invested capital)How many times the money invested comes back.
- Return on investment (ROI)The gain from an investment relative to its cost.
- Payback periodHow long until an investment earns back its cost.
- Time value of moneyMoney today is worth more than the same money later.
- Cost of capital (WACC)The return a company must earn to satisfy its lenders and owners.
- DCF (discounted cash flow)Valuing a business from the future cash it will generate.