The **internal rate of return, or IRR**, is one of the most popular methods of evaluating potential projects. The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. It is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. It is a metric used in capital budgeting to estimate the profitability of potential investments. The internal rate of return is typically used to calculate the profitability of investments made in a financial product or projects

IRR Formula –

Generally speaking, the higher a project’s internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR should probably be considered the best and undertaken first.