A financial calculation that compares the present value of a project’s expected revenues with the present value of its expected costs. The IRR calculation is used to determine the discount rate at which the two values are equal. By doing this calculation, investors are able to see the project’s expected rate of return. The IRR will be a number where revenue exceeds the costs of financing the project. This means a surplus will remain after paying for the capital, and the investors will benefit from the investment. If the IRR is less than the cost of capital, the investors are not likely to participate in the project.
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