Interner Zinsfuß (EN)

Internal Rate of Return Concept

The internal rate of return indicates the average return on invested capital. It is the interest rate at which the net present value of an investment equals zero. Companies use it to compare the profitability of different investments and select the most attractive option.

Calculation Principle

flowchart TD     A[Acquisition costs] --> B[Payment flows]     B --> C{Net present value = 0}     C --> D[Internal rate of return calculation]     D --> E[Investment decision]     E --> F{IRR > Hurdle rate?}     F -->|Yes| G[Carry out investment]     F -->|No| H[Reject investment] 

In Context

• Typically used together with net present value, annuity method, and payback period calculation
• Related to: profitability calculation, cash flow analysis, investment appraisal
• Example use: Comparing different machine investments with different capital outlays and expected returns