# Internal Rate of Return

Internal Rate of Return (IRR) is a discount rate that is used to identify potential/future investments that may be profitable. The IRR is used to make the net present value (NPV) of cash flows from a project/investment equal to zero.

In simpler terms, the IRR is used to determine what percentage return of an investment is necessary for it to break even when adjusted for the value of time and money involved. This is often considered the minimum acceptable return on investment, as most companies want to do more than just break even.

$NPV = \dfrac{CF_{0}}{(1 + r)^{0}} + \dfrac{CF_{1}}{(1 + r)^{1}} + \dfrac{CF_{2}}{(1 + r)^{2}} + \dfrac{CF_{n}}{(1 + r)^{n}} - Initial\: Investment = 0$