Maths Internal Rate of Return IRR

Calculate internal rate of return from annual cash flow.

Internal rate of return can be used to evaluate the relative profitability of various business options. The option with the highest internal rate of return is generally considered to be the best option from a financial perspective. The internal rate of return is the interest rate where the net present value equals zero. The net present value is calculated by discounting future cash flows by the compounded internal rate of return.

`NPV = 0 = Σ (Ci) / (1 + IRR)^i, i = 0 to n `

where :

Ci = yearly cash flow
IRR = internal rate of return
NPV = net present value
i = the year

The internal rate of return IRR is assumed to be constant.

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