In financial analysis, the internal rate of return (IRR) is a statistic used to calculate the profitability of possible investments. IRR is a discount rate that, in a discounted cash flow analysis, reduces all cash flows' net present values (NPV) to zero. Remember that the project's true financial value is not represented by the IRR.
The annual return is what brings the NPV to a negative value. The ultimate objective of IRR is to determine the rate of discount, which brings the initial net cash outlay for the investment's investment to the present value of the total of its initial nominal yearly cash inflows.
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