Middle+ — Senior
What is IRR and payback period?
sobes.tech AI
Answer from AI
IRR (Internal Rate of Return) is the discount rate at which the net present value (NPV) of a project equals zero. It indicates the expected profitability of an investment. If IRR exceeds the cost of capital, the project is considered profitable.
Payback period is the time needed to recover the initial investment from the project's net cash flows. It helps evaluate how quickly the invested money is recouped.
Example:
- Investment: 100,000 rubles
- Annual income: 30,000 rubles
Payback period = 100,000 / 30,000 ≈ 3.33 years.
IRR calculation is more complex and involves analyzing all cash flows over time.