What is the IRR of the project?  What is the NPV of the project, based on the required rate of return of 12%?

The Internal Rate of Return (IRR) is the rate at which a project’s net present value (NPV) is equal to zero. To calculate this, one must first determine their required rate of return, which in this case is 12%. Then they can use an NPV calculator or formula to compute the discounted cash flows associated with the project and compare it to their required rate of return.

For example, if a project requires an initial investment of $10,000 and will generate $30,000 in income over 5 years at 12% discount rate then its IRR would be 14% ($30,000 – $10,000 = NPV of +$20,000; 20 / 10 = 2; 2 x 100 = 200; √200/2 – 1=14%).

Once the IRR is determined then you can use it along with your required rate of return to calculate the NPV for that project. In our example above we have an IRR of 14%, so when compared against our required rate of return of 12% we can see that the NPV for this particular project will be positive (+$20,000).