Let’s look at IRR again…
June 18, 2014![default image](https://nucleusresearch.com/wp-content/themes/nucleus/assets/images/blog-inside-featured.png)
Internal Rate of Return (IRR) does not measure the return of a project. That’s a fact. Don’t let the word “return” fool you. IRR is not the value of a project but rather the interest rate that sets the NPV equal to zero. There are issues with NPV notably that without a residual value at the end of the period the number will be artificially low. This is especially true for technology projects that are ongoing and have no fixed end point. IRR is useful, but only to the extent you are using NPV properly to assess a closed-end project and need to interest rate above which the project no longer makes sense. Examples might be when you are borrowing money and need to negotiate with the bank on the rate. IRR tells you your break-even point. Another example may be comparing projects that can be undertaken in different countries. Comparing the project IRR to the cost of capital in those countries tells you which countries make sense for the project. But the bottom line remains the same. IRR is not ROI. If it were ROI, it would be called ROI. It’s not. It’s called IRR. Completely different.