The internal rate of return (IRR) is the rate of interest or profitability offered by an investment. In other words, it is the percentage of profit or loss that an investment will have for the amounts that have not been withdrawn from the project. It is a rate used very frequently when evaluating the performance of a project.
More specifically, the IRR is used by comparing it to a minimum rate of return required for the investment, whereby, if the value obtained by the IRR is higher than the minimum rate of return required for the project, the project will go ahead; if it is equal, the investor will know that the project can be carried out if conditions are improved and if no other more favorable alternative is available. On the other hand, the IRR will also help us to be able to reject the investment when the minimum profitability expected for the project is not reached.