# What is the IRR rule?

#### Understand the Problem

The question is asking for an explanation of the Internal Rate of Return (IRR) rule, which is a finance concept used to assess the profitability of investments. It indicates the discount rate at which the net present value of the cash flows from an investment would be zero.

#### Answer

The IRR rule evaluates projects based on whether the IRR exceeds the minimum required rate of return.

The IRR rule states that if the internal rate of return on a project or investment is greater than the minimum required rate of return, typically the cost of capital, then the project or investment should be pursued.

##### Answer for screen readers

The IRR rule states that if the internal rate of return on a project or investment is greater than the minimum required rate of return, typically the cost of capital, then the project or investment should be pursued.

#### More Information

The IRR rule is crucial for capital budgeting decisions, ensuring that investments generate returns higher than the cost of capital.

#### Tips

A common mistake is confusing IRR with the actual percentage return you will get; itâ€™s the discount rate that makes NPV zero.

#### Sources

- Internal Rate of Return (IRR) Rule: Definition, Formula & Example - investopedia.com
- IRR Rule for Capital Budgeting: Interpretation and Implications - linkedin.com