![]() IRR differentiates between money at different points in time, on the basis that receiving money now is more useful than receiving it in the future. If the loanĬosts 10% and the IRR is 9%, it’s an unwise investment. If the loan costs 10% and the IRR is 20%, it is a worthwhile investment. ![]() Say you own a restaurant, and you consider getting a bank loan to develop a larger dining area you need to know whether this investment is worthwhile or if it will cost more than it gains. In technical terms, IRR can be defined as the interest rate that makes the Net Present Value (NPV) of all cash flows from the investment equal to zero. The IRR is an interest rate which represents how much money you stand to make fromĪn investment, helping you estimate its future growth potential. ![]() IRR stands for the internal rate of return.
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