IRR (internal rate of return)

IRR (internal rate of return) is the discount rate at which the NPV of cash flows equals zero. The higher the IRR, the more attractive the investment at the same risk.

Project IRR vs equity IRR

• Project IRR uses the cash flows of the whole investment, regardless of financing.
• Equity IRR uses cash flows to shareholders after debt service. With leverage it is usually higher than project IRR but more sensitive to risk.

The Enedeal calculator shows equity IRR for four financing models on identical assumptions.