Internal Rate of Return (IRR)
Accounting glossary · Understand, connect, apply
An internal rate of return is a discount rate that makes a project’s net present value equal zero for its specified cash-flow pattern. It is expressed as a percentage rather than a currency amount.
Example
An investment costs 1,000 now and returns 1,100 after one year with no other cash flows. Its IRR is 10%, because 1,100 ÷ 1.10 equals 1,000.
Remember the difference
Cash flows with several sign changes can produce multiple IRRs or no useful solution. IRR rankings can also conflict with NPV for mutually exclusive projects of different sizes or timings.
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Published 4 November 2026. Prepared with AI assistance; examples are fictional and simplified for learning.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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