If a company is considering investing $200,000 in new equipment
The internal rate of return (IRR) is the discount rate at which a project’s net present value equals zero. It is commonly used to evaluate an investment by calculating the expected return generated by the project and comparing it to other investments or projects available to the organization.
In order to determine each project’s IRR, a financial analysis must be conducted in order to calculate both costs and potential returns associated with the investment. This can include estimating cash flows and costs over time, assessing risks associated with completing the project, and forecasting future income streams that may result from successful completion of the project. Once this information has been gathered, then an IRR calculation can be done in order to compare different projects or investments against one another.