|
|
Internal rate of return |
|
|
|
 Home Site Map Add Term Search About Us Contributors |
Internal rate of returnThe interest rate which, when used as the discount rate for a series of cash flows, gives a net present value of zero.To understand this, remember the fundamental concept that £1 received in ten years is not worth as much as £1 received now, because £1 received now can be invested for ten years and compound into a higher amount.So if you are a project financier, and you are considering the viability of a project that requires up front capital expenditure, which will be recouped by net cash inflows in years 3, 4 and 5, you have to discount the earnings in those later years to establish their net present value. The discount you apply is the crucial thing, but the IRR gives you a starting point -it is the discount rate at which the project will break even.If you apply a discount rate to future cashflows that is higher than the IRR, the project will make a loss in real terms. If you apply a discount that is lower than the IRR, the project will be profitable.Similar MatchesInternal growth rateInternal growth rateMaximum rate a firm can expand without outside sources of funding. Growth generated by cash flows retained by company. Internal financeInternal financeFinance generated within a firm by retained earnings and depreciation. Internal Revenue Service (IRS)Internal Revenue Service (IRS)The federal agency responsible for the collection of federal taxes, including personal and corporate income taxes, Social Security taxes, and excise and gift taxes. Internal Revenue Service Restructuring and Reform Act of 1998Internal Revenue Service Restructuring and Reform Act of 1998The legislation targeted at IRS reform, particularly related to the time period required for capital gains and taxpayer protection and rights. InternalizeInternalizeTo cause, usually by a tax or subsidy, an external cost or benefit of someone's actions to be experienced by them directly, so that they will take it into account in their decisions. Further SuggestionsInternal Revenue ServiceInternal economies of scale Internal balance Incremental internal rate of return Internal expansion Internally efficient market Internal Revenue Code Portfolio internal rate of return Internal measure |
|
|
|