INTERNAL RATE OF RETURN (IRR)

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Calculations of IRR rely on the same formula as NPV, with slight adjustments. IRR calculations assume a neutral NPV (a value of zero) and solve for the discount rate. The discount rate of an investment when NPV is zero is the investment’s IRR, essentially representing the projected rate of growth for that investment. Because IRR is necessarily annual – it refers to projected returns on a yearly basis – it allows for the simplified comparison of a wide variety of types and lengths of investments.

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