Understanding Internal Rate of Return, James Tompkins

This "Understanding Finance Nugget" not only shows you how to calculate the Internal Rate of Return, but also provides an in-depth understanding of what it means and how apply it when a company is deciding on a major asset investment decision (e.g. Apple investing in a new iPhone.) In addition I discuss circumstances in which its application may be useful above and beyond a net present value analysis. Finally I show it is not just good enough to memorize to do the project if the internal rate of return is greater than the discount rate. Based on “understanding” I show there is more to it.