Internal Rate of Return (IRR)
Internal rate of return is another economic model used in project selection. Internal rate of return explain how much percent a project will turn back (e.g., 12% of the interest will return in 2 years).
For example, if 100000 $is needed for initiating pf a project and if internal rate of return is 12% in 2 years, this mean the project will return 12000 $ profit by the end of the second year.
- Calculation of internal rate of return.
Calculation of internal rate of return is complex and not required in PMP exam. Therefore, we will not give a formula of the internal rate of return here. It is enough to know only that project with higher internal rate of return should be selected. Because higher internal rate of return means higher profit respectively.