What is "IRR"? 1

[oranjeep]

I have come across an email that talks about IRR for projects. I know it is an economic term-is it "internal rate of return"?

 

[jbartos]

Suggestion: This is an electrical engineering eng-tips Forum. IRR may be:
Internal Rate of Return
(This is more related to economics)

and technical:
Infrared Radiation
Ifrared Reflectography
Etc.

 

[oranjeep]

Sorry...jst thought some fellow sparky's would be involved in getting projects aproved.

 

[jimmymac2]

I believe that may be Initial Rate of Return.

 

[tomatge]

I think you were right first time. I believe IRR stands for Internal Rate of Return. This is method of financial analysis by which accountants justify withholding money from engineers, who simply want to spend it on fun and interesting projects.

Naturally, the accountants will not tell you how they work this out - otherwise they won't be able to bamboozle you into not having your project funds !!

Seriously, there is an IRR function in MS Excel, that explains in simple terms what it is used for.

 

[oranjeep]

...there is an IRR function in MS Excel, that explains in simple terms what it is used for.
Thanks.

They are tough with handing out the cash, aren't they?!
I don't blame them.

 

[jbartos]

Suggestion: Visit

http://search.netscape.com/ns/boomf...2MS+Excel%22&clickedItemURN=http%3A%2F%2F

http://www.doane.edu%2Fcrete%2Facad...demic/science/ist/taponline/adexcel/excel.htm

for:
Using IRR (internal rate of return)
etc. for more info

 

[electricpete]

Roughly speaking: Model the net present worth of all the expected costs and savings as a function of unknown interest rate (time value of money). Solve for the interest rate necessary to make net present worth=0. That is the IRR. (Roughly speaking)

=====================================
Eng-tips forums: The best place on the web for engineering discussions.

 

[alehman]

To be technical about it, it's the interest rate that makes net present value of all cash flow equal zero.

IRR is defined by the equation:
[tt]
NPV(C, t, IRR) = 0
where,
N
NPV(C, t, d) = Sum C/(1+d)^t
i=0
[/tt]
C is the i-th cash flow (C[0] is the first, C[N] is the last).
d is the assumed discount rate.
t is the time between the first cash flow and the i-th. Obviously, t[0]=0 and t[N]=the length of time under consideration. Pick whatever units of time you like, but remember that IRR will end up being rate of return per chosen time unit.

See

http://www.investopedia.com/offsite...t-faq.com/articles/analy-int-rate-return.html

 

[jbartos]

Comment: Mathematically, the internal rate of return is the discount rate at which the present value of the cost stream (including both original investments and subsequent costs) equals to the present value of the revenue stream.
Reference:
Donald G. Fink, H. Wayne Beaty "Standard Handbook for Electrical Engineers," 13th Edition, McGraw-Hill, Inc., 1993.
3. Decision Criteria. Page 13-3

 

[oranjeep]

Grat posts. Thanks