<P> It is also called the discounted cash flow rate of return (DCFROR). </P> <P> In the context of savings and loans, the IRR is also called the effective interest rate . </P> <P> The internal rate of return on an investment or project is the "annualized effective compounded return rate" or rate of return that sets the net present value of all cash flows (both positive and negative) from the investment equal to zero . Equivalently, it is the discount rate at which the net present value of future cash flows is equal to the initial investment, and it is also the discount rate at which the total present value of costs (negative cash flows) equals the total present value of the benefits (positive cash flows). </P> <P> Speaking intuitively, IRR is designed to account for the time preference of money and investments . A given return on investment received at a given time is worth more than the same return received at a later time, so the latter would yield a lower IRR than the former, if all other factors are equal . A fixed income investment in which money is deposited once, interest on this deposit is paid to the investor at a specified interest rate every time period, and the original deposit neither increases nor decreases, would have an IRR equal to the specified interest rate . An investment which has the same total returns as the preceding investment, but delays returns for one or more time periods, would have a lower IRR . This lower IRR would indicate the interest rate of a fixed income investment that would have the same overall value as the delayed investment . </P>

The irr (internal rate of return) of an investment assumes that
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