IRR method
IRR is defined as a discount rate at which NPV=0 IRR is calculated by trial and error NPV = C0 + C1/(1+r)=0 r = C1+C0/-C0 The rate of return rule: invest in any project offering a rate of return that is higher than the opportunity cost of capital. Decision rules and interpretation Accept project that have an IRR greater then the opportunity cost of capital. IRR is often interpreted as the effective rate of return for the investment made in the project.