IRR (Internal Rate of Return)
Вставка
- Опубліковано 10 лют 2025
- This video explains the concept of IRR (the internal rate of return) and illustrates how to calculate the IRR via an example.
-
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
-
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES AND SPREADSHEETS
eepurl.com/dIaa5z
-
SUPPORT EDSPIRA ON PATREON
* / prof_mclaughlin
-
GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
edspira.thinki...
-
LISTEN TO THE SCHEME PODCAST
Apple Podcasts: podcasts.apple...
Spotify: open.spotify.c...
Website: www.edspira.co...
-
GET TAX TIPS ON TIKTOK
/ prof_mclaughlin
-
ACCESS INDEX OF VIDEOS
www.edspira.co...
-
CONNECT WITH EDSPIRA
Facebook: / edspira
Instagram: / edspiradotcom
LinkedIn: / edspira
-
CONNECT WITH MICHAEL
Twitter: / prof_mclaughlin
LinkedIn: / prof-michael-mclaughlin
-
ABOUT EDSPIRA AND ITS CREATOR
www.edspira.co...
michaelmclaugh...
I have sat through Harvard MBA lectures that weren't this concise, thorough, and articulate. Thank you for an excellent presentation.
bullshit lol
@@alexblack8780 People who just say such videos are bullshit are people who don't study and expect to find videos that are exactly like their assignment requirements. You did not study
@@ndumisoradebe5256 lol she's lazy
Well obviously because the truth of the matter is that you're not attending IVY LEAGUE schools for their excellence in teaching. You attend for the brand name and networking.
weird flex but ok
in 10 minutes this man happens to explain things better than my professor does in an hour and a half
The way university professors get discredited on UA-cam
Man !!! how can i thank you for this ? so many courses and videos, and u make it clear, simple and logic....
Glad you like them!
I am a 38 year old who failed maths at school and now I’m training for investment exams. Your videos are helping me greatly. Mathematics really isn’t as intimidating as it seems.
Happy 40th Bday!
@@BUDUSANTHO thank you. I passed the exams and it got me a really good job.
@@RaferJeffersonIII thats awesome man, could you throw some light on what type of exams you gave? It will really help me
@@nikhilesh9445 CFA IMC.
@@nikhilesh9445 oh and CII AF4 but I already had a bunch of CII exams
You'll never know how helpful your teaching service is, for the ones who cannot afford quality education. Thanks for your efforts, love from India 🇮🇳
I have cracked it by watching this video over and over. Thank you for such awesome content. Thank God ❤️.
IRR is the actual rate of return of an investment. IRR can be found when
Npv =0. This is because The cash flows which we are going to earn in future, are future cash flows which have to be converted into their present value. This is done for an 🍎 to 🍎 comparison.
If Npv>0 it means capital appreciation and Npv
i didnt get anything but looks very interesting
I’m taking a financial statement analysis course, and before watching this video I didn’t understand the point of the IRR. I couldn’t see why you would want to set the NPV = 0. Now that I see that the two functions are different ways of coming up with a decision (one a dollar figure and the other a rate), it makes perfect sense.
After so many videos and lectures in last 10 years, finally found something relevant. Thanks for the amazing yet simple explanation.
Waaaw, I have looking for explanations about IRR, NPV and it was always confusing. You just enlighten me. This video is 9 years old but a lot more clear than all the one I have checked. Thanks a lot. I hope that you continue to do that.
I like how you explain formulas conceptually like a professor (like how you explained the tax shield in the WACC video). A lot of websites only tell you what the formula is, but don't tell you why.
I am currently studying masters in Australia and I must say you are far better then my tutor.
Thank you for uploading ❤
I appreciate his efforts. This man explains everything in such an easy way and in 10min. Woww
This video is a must before reading any text-book this topic.
I wish you were my professor. your explanations are amazing!
Thank you so much for providing the *conceptual* interpretation of the IRR, in addition to interpreting the decision rule process under this method!
edspira really changed the game, imagine getting 1.4 million views for irr
YOU EXPLAIN BETTER THAN MY CORPORATE FINANCE PROFESSOR. MY LORD AND SAVIOR
I love how u mention what does that mean conceptually. Im here for that. thank you so much
I'm so glad you found that helpful!
It's finals week and Edspira is my lord and savior until it's over
I don't like online learning, but I like online learning with you.
Thank you my friend!
Gosh MBA student here, I was drowning but your video helped a lot..God Bless
This was much easier to understand than my professor's explanation. Thank you for your videos, they are lifesavers!!!
You're very welcome!
Studying through Unisa and man one is alone. I will be going through all your lessons preparing assignment and exams thank you😊
I was getting really frustrated and then I found this video and now I feel intelligent, thank you!!
This tutor is amazing. I really find his videos helpful and easy to understand. THANK YOU!
Fuad,
Thanks so much for watching the videos!
Really good explanation and just 7 mins. Loads better than other videos . Thnx a lot :D
I'm just getting started in investing in multifamily. This video is GREAT!!!
Thank you sir so much! It's my first time to leave a comment, but your lecture is so superb! I hope you're my professor. Best lecture ever! Clear! And perfect thank you so much! You saved me♥♥
You are are really good. You made me understand this concept better than my lecturer. U earned my subscription. I will keep learning from you. Thanks Sir❤
Thank you so much for posting these videos! You are an incredible instructor. Now I understand my classwork. Great job!
seriously wow!! one should teach at such a basic level to make people understand. The concept is if market discount rate (r) is greater than IRR (R), then NPV become negative. The inference is, if your market rate is high, you can go and invest the money in the market than investing in the project.
For example, from the above sum, lets say discount rate (r) is 35%. Discount rate also means the market rate. So one can go and invest 100$ and make 135$ in a year. But this project only gives 130$. So if Rr, invest in the project.
Thank you so much!!
Thank you sir! You helped me save so much time with my MBA studies!
+Vivi Lin No problem! I hope you're having a great experience with the MBA!
What a lovely insightful view of IRR.
I'm confused... You get an NPV of $20.37 when r=8%. And an NPV of $0 when R=30%. Why does this mean you accept when R>r? If R
Works just as he says once I bought the basic casio calculator!!! Thank you
Thank you so much for your help. I first struggled with this concept in class. You made learning economics fun and easy!
Thanks Mark Lee! It always good to hear that these videos are helpful :)
This guy is a genius, thumps up
0:25 If NPV > 0, Accept, If Not, Don't Accept
1:00 Ex. Project
5:00 If R>r, Accept
Thanks for making my Financial Mgmt class so much easier!
Thank you so much for such a lucid explanation
Thanks God, you don't know how much you helped me sir, I am preparing for Finance exam and Your video made it very very VERY clear to me. Thank you sir... God Bless you for your good work...
Comments like these keep me motivated to keep churning out content. I hope you did well on your exam. Best of luck to you!
I use Delta Business Financial calculator , android but I didn't know what things are meaning .
now I got it thank you for your tutorial
Ferris Bueller's teacher came to mind! Good stuff, though, seriously. Thanks!
Thanks u have helped me a lot with proper explanation
superb,... conceptual... 8 percent is bep in this ex ... irr more than bep accept..
thats the conceptual point u made amazingly explained in a conceptual manner...!!great boss
!!
Thanks for the kind words!
Excellent stuff - the algebra makes it so clear
You are a very good teacher 👏 👏 👏 👏 👏
Your videos are a lifesaver, especially for a beginner - Keep up the good work!
Brillant! I wish I could meet you one day. Saving us since years ♥️
so basically we compare that to borrowing cost, in this case the 8% represents borrowing cost, meaning our the borrowing cost would need to be bigger than 30% for our company to not be able to create value.
Thank you, your videos are extremely helpful! Your voice is also very pleasant and easy to listen to. ☺😉
Thank you!
Your way of explaining is soo simple, yet elaborate. Love it
I tried this method for IRR for a project that goes for 4 years, and it proved to b impossible to work out the math
After today I know what IRR is thank you. for the video
Thank you so much for sharing your wealth of knowledge.
Sure, I'm happy to help!
great,thanx a lot ,sooo useful, I have learned it before and totally forgot about it, and the videos help me remand of all the knowledges.
Awesome. Thanks for watching!
Great explanation 💯💯
Honestly this goes right over my head, but I'm coding software for a company that needs this so I'm just looking for the formula :)
my mba proffessor sucks, this was helpful
thank you so very much, watching from South Africa
finally the explanation that i need. thankyou sir!
Nice and clear, much appreciated.
Your videos are solid but the audio is not really constant.Other than that,great video,helped me understyand more clearly!
thank you so much!!!!!...all the way from South Africa
which course are doing
Anele Goniwe Business Management (ICB)
Another South African 😀
Luqmaan Abrahams hey!, goodluck with your exams ✌
You are exceptionally good. Thanks Sir.
Love your explanation is very clear
Thanks a lot, sir! You made my college life easier.
You made me smile with this comment :) Happy studies!
Very Clear. Helpful for the exam. Thanks
No problem-- hope you did well on the exam!
thanking you before i finish watching the video bc it helped so much I'm crying
Thank you for this kind note. I hope you do great in your course!
Thank you professor 🙏
It's Cristal clear now on IRR concept!
But I didn't understand how it should be a part of investment decision?
Let's say your company has the following decision rule: "we only accept projects with an IRR greater than 15%." In that case, if you calculate the IRR for a project and it is 23%, you would accept the project. Now it's a bit more complicated than that, as it's usually best to do some type of sensitivity analysis, but that's the general idea.
great tutorial
Thanks!
If project I of like 5 years you use the cumulative cash flow or the cash flow of the fifth year?
Really helpful but still don't get how you calculated that the big R = 30% - please can someone help?
same
Great and simple
WOW you are the best!! Literally my life saver!
you earned a sub you legend
Greatly explained, thank youuu.
Better than any textbooks 😜
Well explained
Thank you!
Very good video! Thank you!
It makes sense, but it would have been nice to use the example from the NPV video to be able to associate the NPV to the IRR.
Lot thanks to you Sir, Almighty God bless you. I wish one day i shall be like you
a really perfect explaination. thank you
Awesome and clear thanks !
My pleasure! Best wishes
Education Unlocked
Thank you very much
Great video-Thank you. But actually made me a bit more confused. You state IRR is condition which sets the NPV = 0. We know in the case of NPV that an investment should ONLY be made if NPV > 0. So shouldn't the decision rule for IRR be that if the rate of return is GREATER than IRR then an investment should be made?
To understand this more fully you should first understand the relationship between interest rates and present values. As with bond valuation, the higher the discount rate the lower the present value. With NPV this also means the higher the discount rate the lower the NPV. Now with IRR (which in fact is a hypothetical rate to determine break even position, i.e. NPV=0) if it is greater than the discount rate then this would mean the NPV associated with the actual discount rate would be >0, accept. Conversely, if the IRR is less than the discount rate then the NPV associated with the true discount rate will be
@@venusfrith2864 so well explained. Thank you mate!
This is really really good! Thank you very much helping me out!
You're welcome. Good luck to you!
Thanks prof!
This is really helpful video.
fun fact IRR was actually invented during the pirates age! It roughly originated from the 'Aye Argh Argh'
pirates were really ahead of their times
(factually incorrect)
thank you !! you saved my life! :)
I'm happy to have helped! Have a great summer!!
Nice video
😀
Thank u so much for this video
Thank you for your all beautifully explained videos.
Thank you so much man
The IRR and NPV equations are identical with the exception that you're solving for a different variable. Therefore, as the rate (call it R or r) goes up, your NPV decreases. When you get to NPV=0, the "R or r" at that point is 30%. Can you please explain, why your rate of return continues to increase if your project's NPV goes negative (implying destruction of firm value)? Conceptually, I can't wrap my brain around this. Thank you for your videos.
likquidsteel
Taken from a mathematical angle, the higher the denominator, the IRR in this case, the smaller the result.
From a finance angle, notice that this is a discounting rate; not a compounding rate.
The NPV is basically the sum of the discounted present values of the cash inflows. You're "stripping" an invested sum of money in the future, at a specific rate, of its interest and sorta bringing it to the now where it hasn't been invested yet. So, the higher the IRR, the more "stripped" the money is; consequently, the smaller the amount now, the NPV.
I hope you have a better understanding of it now.
The concept is if market discount rate (r) is greater than IRR (R), then NPV become negative. The inference is, if your market rate is high, you can go and invest the money in the market than investing in the project.
For example, from the above sum, lets say discount rate (r) is 35%. Discount rate also means the market rate. So one can go and invest 100$ and make 135$ in a year. But this project only gives 130$. So if Rr, invest in the project.
@@venkatachalamv3826 Yes! This is what should have been explained in the video.
@@adityaprasad465 Thank you!! :)
Thanks for the tutorial.
what about when we have a time of about 5 years how do we solve for R knowing that you add them together increasing the power of 1+i
Thank heavens that I still remember some algrebra😹 You've been of great help as always man 👍
excellent explanation! thanks alot god bless
Thank you! Good tidings to you as well my friend :)