Internal Rate of Return (IRR)
The internal rate of return method provides the exact
rate of return, based on the net present value of all
future cash flows, that a company can expect to
earn on a capital investment project.
IRR calculates the interest rate that makes the net present
value of a capital investment exactly equal to zero
If IRR>hurdle rate, then NPV>0
If IRR<hurdle rate, then NPV<0
Question: If a project requires initial investment of $2,000, and will
return $1,100 at the year 1 and $1,210 at the end of year 2.
What's the IRR of the project?