Internal Rate of Return (IRR) Explained with Example

This video explains everything you need to know about Internal Rate of Return, including working through an example of how to calculate it for yourself.
Running Order:
- Why Do We Need IRR? 00:06
- NPV vs. IRR 00:32
- Example Project 00:49
- Steps to Calculate NPV 01:22
- Steps to Calculate IRR 03:56
- How to Use Excel to Calculate IRR 05:55
- Comparing Projects Using IRR 06:17
- Advantages and Disadvantages of IRR 07:06
- Summary 08:01
To understand IRR, it really helps to already understand net present value (NPV). In fact, we recommend you watch our NPV video before this video. You can find our NPV video here:
• Net Present Value Expl...
To learn more about internal rate of return, you can read our companion article to this video here:
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[@alexdunae]

Thanks for a super clear explanation. Much appreciated!

[@cmathias4993]

How did you get a Negative NPV when using 12% as the Rate of Return? It should be positive since the IRR is Higher than 12%

[@epm8805]

You can work through the example yourself and see the example is correct. Basically, if your rate of return guess is too high, then you'll get a positive NPV and you need to reduce your rate of return guess. Conversely, if your rate of return guess is too low, NPV will be negative, and you need to increase your guess.