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Internal rate of return - Wikipedia, the free encyclopedia

In more specific terms, the IRR of an investment is the interest rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment.

Internal rates of return are commonly used to evaluate the desirability of investments or projects. The higher a project's internal rate of return, the more desirable it is to undertake the project. Assuming all projects require the same amount of up-front investment, the project with the highest IRR would be considered the best and undertaken first.

A firm (or individual) should, in theory, undertake all projects or investments available with IRRs that exceed the cost of capital.

Your Figure 26 is fascinating. Let me see if I read it right: to produce one barrel of oil outside the OPEC and still get a 12% IRR on it, you currently need to invest about 80 dollars. Correct?

Noob question: At what IRR becomes a financial undertaking no longer interesting? Is that at zero percent, or something in between twelve and zero?

by Nomad on Fri Feb 25th, 2011 at 07:37:00 AM EST

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