Internal Rate of Return | CFA Level 1 Exam | Test Prep

Internal Rate of Return

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The internal rate of return of a capital investment

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The IRR is calculated by finding the discount rate that equates the present value of future cash inflows to the project's cost. The IRR is the project's expected rate of return. If the IRR exceeds the cost of the funds used to finance the project, a surplus accrues. Thus, accepting a project whose IRR exceeds its cost of capital increases shareholder wealth.