Internal rate of return - part 1
Taught by Nick Drape · AI tutor support included
You'll learn what internal rate of return (IRR) is and why it's one of the most widely used investment appraisal techniques in practice.
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In this lesson
- 0:00 Internal Rate of Return overview
- 0:30 IRR definition and core concepts
- 1:09 NPV profile of normal projects
- 2:28 IRR decision rule and cost of capital
- 4:00 Linear interpolation calculation method
- 6:03 IRR formula walkthrough and application
About this lesson
This video explains the concept clearly: IRR is the discount rate at which a project's net present value equals zero, or equivalently, the approximate annual percentage return a project generates. You'll see how IRR compares to NPV, understand the decision rule (accept projects where IRR exceeds your cost of capital), and learn the linear interpolation method to calculate it. This is essential knowledge for FM, APM, and AFM papers, and forms the foundation for part 2 where you'll work through practical calculations.
Duration: 8m
Transcript
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