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What Is Internal Rate of Return (IRR)?
IRR vs NPV: Which Should You Use?
How to Interpret Your IRR Result
Limitations of IRR in Investment Analysis
Frequently Asked Questions
A good IRR depends on the type of investment and its risk. For private equity, 15% to 25% is typical. Real estate investors often target 8% to 12%. Compare your IRR to your cost of capital or the return you could earn elsewhere with similar risk.
ROI is a simple total return ratio (profit divided by cost) that ignores the time value of money. IRR accounts for when cash flows occur, making it more useful for comparing investments with different timelines and cash flow patterns.
Yes, IRR is negative when the total cash flows do not recover the initial investment. A negative IRR means the investment loses money. If total cash flows exceed the initial investment, IRR will be positive.
IRR assumes cash flows are reinvested at the IRR rate itself, which may be unrealistic for very high IRRs. It can also give multiple solutions with non-conventional cash flows. For these reasons, many analysts use Modified IRR (MIRR) or NPV alongside IRR.