Internal Rate of Return (IRR):
It is the return which we get if any amount is invested in the business instead of investing outside.
I would like to know whether the above meaning is correct or not? If not correct then please define it, and also please let me know IRR should be more or Less.
As per my knowledge IRR will be more because more returns are expected in the business than that of the outside resourses.
If possible please explain me with an example.
Thank you...!
You are correct to some extent. You have a narrow definition of IRR... It can be used to compare against Cost of capital, Outside interest rates on deposits, etc.... IRR should always be more because you being a rational person, will always go for the investment paying the highest return. Now if some other source pays you more, you will invest there only instead of the project for which you clculated IRR......... It is the rate at which the NPV of a project becomes Zero......
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