02 / 15 · GLOSSARY
02 / 15IRRDificultad

Internal Rate of Return

The actual return rate your business generates. If it exceeds your MARR (minimum required rate), the project is viable.

Analogía

It's the interest rate your investment is paying you. If your bank gives 10% and your business gives 35%, the decision is clear.

Ejemplo numérico

IRR > MARR: the project earns more than your minimum threshold — accept. IRR < MARR: it earns less than the safe alternative — reject. With the same flows from the NPV example, IRR ≈ 15.2%. If your MARR was 15%, the project barely passes — sensitive to any forecast error.

Fórmula
IRR = rate that makes NPV = 0

When to use it

When you want to express profitability as a rate comparable with other alternatives: term deposits, bonds, another business.

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Definitions aligned with Blank & Tarquin, Engineering Economy, 8th edition — McGraw-Hill.