How to Calculate the Internal Rate of Return | Part 1

The Internal Rate of Return, or IRR for short, is the discount rate that causes the net present value to equal zero. As a type of capital budgeting tool, the IRR allows managers and business owners the ability to weight a variety of different capital budgeting projects.

The video provides a brief description and purpose of IRR in addition to showing how to calculate the internal rate of return. It is recommended that viewers have an understanding of the time value of money and how to calculate both the present value and NPV prior to learning IRR. The following videos are resources that will detail these topics.

[ThomasMulholland]

Thanks for this video, pay thousands in tuition fees and a free five minute video has explained this infinitely better than my lecturer! I'll remember this in my exam

[makeupbyDayzee]

Thank you so much! This is the easiest IRR video to understand on Youtube.

[giogerard]

This was really helpful! I was absolutely clueless in class today regarding the IRR and NPV then I came back and viewed your videos. Now I've gotten a much clearer picture, thanks a bunch!

[Alanisbusinessacademy]

Sure thing! I'll need a week or two since I have to work them into my existing production schedule, but those are certainly topics that I can cover. Thanks for the suggestions.

[aniswando]

this is very clarification video in youtube --- keep up - we need more video in financial Management and investment decisions

[Yaddehpaddeh]

Your channel is the one i use for all accounting and finance classes. thanks to your dedication, people like me can pass their exams. cheers!

[DeHantales]

hye there. Just wanted to say thanks. You make the calculation much more easier to understand.

[timotuomivirta]

This video was good and made the topic clear for me. Unlike several other sources. Than you=)

[Earth]

Very clear and complete. Very helpful for my tomorrow's exam. Good work

[Rose]

Thanks for saving my butt hours before the finals exam!

[dennisnangabo]

Awesome. To get the almost exact IRR:
1. Take the high NPV minus the low NPV 239.46-22.32=217.14
2. Divide the answer in 1 above by the difference in the two rates. 217/(12-9)=72.38
3.Divide the lower NPV by the answer in 2. i.e 22.32/72.38=0.308
4. Add 0.308 to the high NPV 0.308+12=12.308 or round off to 12.31%

This is closer to 12.32%

[NafeesAhmadangel]

Thank you so much man. Hope to have such wonderful videos in future.

[Alanisbusinessacademy]

Since IRR is the rate that discounts all future cash flows to zero, you'd have to use a trial and error message unless you have access to a financial calculator. I would start with 12 percent since that's the rate you're given and move up or down depending on the result. If your unsure of this, review this video as I walk through how to calculate IRR. Good luck!

[itsdannyftw]

Thank you so much for the videos. I am a bit confused. Why does a higher IRR mean discounting our future cash flows (both inflows and outflows?) by a greater interest rate (discount rate? WACC?) so that it equals our investment? In turn, why is a higher IRR more attractive? I don't understand why a higher discount rate is considered more attractive or better, could you explain? Thank you.

[gaziishtiakjahan]

Very nicely example was really helpful to understand the concept.

[veronicamaynard]

excellent video. clear and concise and I thank you for posting it. my only thing is in answering a question, how do you lay it out on the paper when randomly selecting the percentages so that the lecturer can give the marks for the various steps.

[altonlinus]

Thanks for all the videos! really easy to understand!

[philippegauthier]

Wow I'm so happy to have found your Channel.. Man you saved my ass big time for the tommorrow's exam x_x

[manakonemaia]

Thanks heaps! I've got my final exam soon and thanks to you! I finally clicked about the meaning of npv=0! Thanks so much if only you could have witnessed my light bulb moment! Haha! Great video!

[priyaarora]

How will we know that on what percentage we have to find the NPV? like you did on 9% and 12% in the above example