IRR is short for internal rate of return.

Internal rate of return is a method of calculating an investmentâ€™s rate of return.

Calculating the IRR will show if your company made or lost money on a project also its used to determine if an investment, project or expenditure was worthwhile.

**Formula to calculate IRR.**

IO is the initial outlay.

CF is the cashflow.

RR is the rate of return.

This formula is mostly applicable where you have been given the discounting rate.

**Example:**

Suppose you invested in an investment whose initial cash outlay was $ 10,000 with a 10% discounting rate. if it was to last for 2 years, calculate the IRR if in the first year it was to bring in a cashflow of $ 5,000 and in the second $ 7,000.

Therefore, the IRR is $ 20,330.6.