Glossary term
Internal rate of return
Internal rate of return is the rate that makes a set of cash flows have a net present value of zero.
Plain meaning
What internal rate of return means
Internal rate of return, often shortened to IRR, is a cash-flow rate measure. Instead of entering a rate and calculating a dollar value, IRR uses the cash flows to solve for the rate.
Formula role
How OpenBook uses it
OpenBook calculators use IRR as a rate output for cash-flow streams with at least one negative cash flow and at least one positive cash flow. The calculation searches for the rate where net present value equals zero.
Because IRR depends on the full cash-flow pattern, the timing and signs of the cash flows matter.
Common limitation
Why IRR needs context
Some cash-flow patterns can produce no meaningful IRR or more than one mathematical solution. OpenBook calculators flag calculation limits where the entered cash flows do not support a clear result.