IRR is short for internal rate of return.
Internal rate of return is a method of calculating an investment’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.
![How to Calculate IRR.](https://www.learntocalculate.com/wp-content/uploads/2020/10/IRR-1.png)
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.
![How to Calculate IRR.](https://www.learntocalculate.com/wp-content/uploads/2020/10/IRR-7.png)
Therefore, the IRR is $ 20,330.6.