IRR Rule

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Dictionary Says

Definition of 'IRR Rule'

A measure for evaluating whether to proceed with a project or investment. The IRR rule states that if the internal rate of return (IRR) on a project or investment is greater than the minimum required rate of return – the cost of capital – then the decision would generally be to go ahead with it. Conversely, if the IRR on a project or investment is lower than the cost of capital, then the best course of action may be to reject it.
Investopedia Says

Investopedia explains 'IRR Rule'

The higher the IRR on a project and the greater the amount by which it exceeds the cost of capital, the higher the net cash flows to the investor. In general terms, a company that has to choose one, among several similar projects with equivalent degrees of risk, may go with the one that provides the highest IRR.

 

The IRR rule is one among a number of rules used to evaluate projects in capital budgeting. However, it may not always be rigidly enforced. For example, a company may prefer a project with a lower IRR over one with a higher IRR because the former provides other intangible benefits such as being part of a bigger strategic plan or impeding competition. A company may also prefer a larger project with a lower IRR to a much smaller project with a higher IRR, because of the higher cash flows generated by the larger project.

Search results for

'IRR Rule'

  • CFA Level 1 Study Guide - Quantitative Methods - Net Present Value ...

    http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-npv-irr.asp
    ... Economic Analysis: 5.1 Introduction; 5.2 Production Possibility Curves; 5.3 Trade
    Efficiency Rule; ... Net Present Value (NPV) and the Internal Rate of Return (IRR); ...

  • An Introduction To Corporate Valuation Methods

    http://www.investopedia.com/articles/financial-theory/11/corporate-project-valuation-methods.asp
    ... The IRR rule is as follows: IRR > cost of capital = accept project IRR < cost of
    capital = reject project In the example below, the IRR is 15%. ...

  • CFA Level 1 Study Guide - Corporate Finance - Net Present Value ...

    http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/npv-net-present-value-irr-internal-rate-of-return.asp
    ... Economic Analysis: 5.1 Introduction; 5.2 Production Possibility Curves; 5.3 Trade
    Efficiency Rule; ... Net Present Value (NPV) and the Internal Rate of Return (IRR); ...

  • CFA Level 1 Study Guide - Global Economic Analysis - Trade ...

    http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/trade-efficiency.asp
    ... Economic Analysis: 5.1 Introduction; 5.2 Production Possibility Curves; 5.3 Trade
    Efficiency Rule; ... Net Present Value (NPV) and the Internal Rate of Return (IRR); ...

  • CFA Level 1 Study Guide - Corporate Finance - Advantages and ...

    http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/advantages-disadvantages-npv-net-present-value-irr-internal-rate-of-return.asp
    ... Economic Analysis: 5.1 Introduction; 5.2 Production Possibility Curves; 5.3 Trade
    Efficiency Rule; ... Net Present Value (NPV) and the Internal Rate of Return (IRR); ...

  • Series 65 Study Guide - Quantitative Methods of Evaluating ...

    http://www.investopedia.com/exam-guide/series-65/quantitative-methods/rates-of-return-internal-rate-of-return.asp
    ... Internal Rate of Return (IRR) The IRR is essentially the interest rate that
    makes the net present value of all cash flow equal zero. ...

  • CFA Level 1 Study Guide - Quantitative Methods - Joint Probability ...

    http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/joint-probability.asp
    ... Economic Analysis: 5.1 Introduction; 5.2 Production Possibility Curves; 5.3 Trade
    Efficiency Rule; ... Net Present Value (NPV) and the Internal Rate of Return (IRR); ...

  • CFA Level 1 Study Guide - Macroeconomics - Expectations of ...

    http://www.investopedia.com/exam-guide/cfa-level-1/macroeconomics/expectations-monetary-policy.asp
    ... Economic Analysis: 5.1 Introduction; 5.2 Production Possibility Curves; 5.3 Trade
    Efficiency Rule; ... Net Present Value (NPV) and the Internal Rate of Return (IRR); ...

  • Forex Slideshows | Investopedia

    http://www.investopedia.com/slide-show/forex/
    ... Rule No.2 is: Don't Forget Rule No. 1.". Read More »; ... Internal rate of return, or
    IRR, is one of the most popular methods of evaluating potential projects. ...

  • Forex Slideshows | Investopedia

    http://www.investopedia.com/slide-show/forex
    ... Rule No.2 is: Don't Forget Rule No. 1.". Read More »; ... Internal rate of return, or
    IRR, is one of the most popular methods of evaluating potential projects. ...

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