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 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.

Net Present Value  NPV
The difference between the present value of cash inflows and ... 
Internal Rate Of Return  IRR
The discount rate often used in capital budgeting that makes ... 
Modified Internal Rate Of Return ...
While the internal rate of return (IRR) assumes the cash flows ... 
Capital Budgeting
The process in which a business determines whether projects such ... 
Hurdle Rate
The minimum rate of return on a project or investment required ... 
Discounted Cash Flow  DCF
A valuation method used to estimate the attractiveness of an ...

Bonds & Fixed Income
Breaking Down The Fed Model
Learn what pundits mean when they say that stocks are undervalued according to the Fed model. 
Forex Education
Time Value Of Money: Determining Your Future Worth
Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation. 
Fundamental Analysis
Internal Rate Of Return: An Inside Look
Use this method to choose which project or investment is right for you. 
Budgeting
What's the difference between net present value and internal rate of return? How are they used?
Both of these measurements are primarily used in capital budgeting, the process by which companies determine whether a new investment or expansion opportunity is worthwhile. Given an investment ... 
Budgeting
Which is a better measure for capital budgeting, IRR or NPV?
In capital budgeting, there are a number of different approaches that can be used to evaluate any given project, and each approach has its own distinct advantages and disadvantages.All other ... 
Fundamental Analysis
What is a good interest coverage ratio?
Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's financial health. 
Fundamental Analysis
What is a bad interest coverage ratio?
Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be an unacceptably low coverage ratio. 
Technical Indicators
What is a good gearing ratio?
Understand the meaning of the gearing ratio, how it is calculated, the definition of high and low gearing, and how they reflect relative financial stability. 
Investing Basics
What is the difference between the gearing ratio and the debttoequity ratio?
Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular analytical gearing tools. 
Investing Basics
What is the difference between interest coverage ratio and TIE?
Read about the times interest earned, also known as the interest coverage ratio. Find out why this is an important ratio for investors and creditors.