IRR calculation

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NTT
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Location: Boston, MA

IRR calculation

Postby NTT » Tue Feb 13, 2018 12:59 pm

How is project IRR calculated? What happens with the IRR if project does not have income?
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bbadmin
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Re: IRR calculation

Postby bbadmin » Tue Feb 13, 2018 1:01 pm

IRR provides a rate (%) of expected return based on the difference between the present value of income and the present value of project costs over the life of the project or a period of time. Net present value uses a discount rate, which generally represents the cost of borrowing (interest) to calculate the current or present value of a project.

Very simply if we have calculated the net present values (discounted) for income and cost, IRR = profit/cost as a %. In the example below, the NPV $249.941 profit represents a 47% IRR. If there is no income, IRR is 0.

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