To calculate the Internal Rate of Return (\(IRR\)):
\[ r = \left( \frac{x(t)}{x0} \right)^{\frac{1}{y}} - 1 \]
Where:
The Internal Rate of Return (IRR) is a financial metric used to assess the profitability of an investment. It represents the discount rate that makes the net present value (NPV) of the investment equal to zero. In other words, it is the rate at which the present value of cash inflows equals the present value of cash outflows. IRR is crucial because it allows investors to evaluate the potential profitability of an investment project.
Let's assume the following values:
Using the formula:
\[ r = \left( \frac{15000}{10000} \right)^{\frac{1}{5}} - 1 = 0.08447 \text{ or } 8.45\% \]
The Internal Rate of Return is 8.45%.
Let's assume the following values:
Using the formula:
\[ r = \left( \frac{30000}{20000} \right)^{\frac{1}{3}} - 1 = 0.1437 \text{ or } 14.37\% \]
The Internal Rate of Return is 14.37%.