Defined Terms and Documents     Discussion Paper          Annexure A    Annexure B    

Internal Rate of Return or IRR means -

(i)         capital budgeting metric used by firms to decide whether they should make investments;

(ii)        an indicator of the efficiency of an investment, as opposed to net present value (NPV), which indicates value or magnitude.

(iii)       annualized effective compounded return rate which can be earned on the invested capital, i.e., the yield on the investment - a project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments (investing in other projects, buying bonds, even putting the money in a bank account). Thus, the IRR should be compared to any alternate costs of capital including an appropriate risk premium.

(iv)       in mathematically parlance, "any discount rate that results in a net present value of zero of a series of cash flows";

In general, if the IRR is greater than the project's cost of capital, or hurdle rate, the project will add value for the company.