internal rate of return
- noun an average annual yield of an investment, where the interest earned over a period of time is the same as the original cost of the investment.
- noun the discount rate at which the cost of an investment and its future cash inflows are exactly equal.
- (written as Internal Rate of Return)
That discount rate that makes the net present value of costs and benefits equal zero. Thus, with Bt and Ct representing costs and benefits in year t, the annual internal rate of return is r* in the formula:
0 = St(Bt - Ct)/(1+ r*)
- synonymReturn on Investment