The discount rate that makes the net present value of an investment equal to zero, representing the expected annual return rate. It's the break-even rate where the present value of cash inflows equals the initial investment.
Developed in the 1960s as a complement to NPV analysis, building on earlier mathematical concepts of yield to maturity in bond analysis. The 'internal' designation distinguishes it from external market rates, as it's inherent to the specific investment's cash flows.
IRR is like asking 'what interest rate would a bank have to offer me to make me indifferent between this investment and just depositing my money?' It's the investment's own personal interest rate, but beware - projects with weird cash flow patterns can have multiple IRRs that confuse even seasoned analysts!
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