what is an irr or hurdle rate
Internal Rate of Return IRR and Modified IRR Definitions, Meaning Explained, Usage, Example Calculations The internal rate of return (IRR) for a cash flow stream is the interest rate (discount rate) that produces a net present value of 0 for the cash flow stream. That definition, however, can be less than satisfying when first heard. Capital Budgeting Basics In the net present value analysis, hurdle rate is the rate used to discount future net cash flows of the project. If the actual return on the project is higher than the hurdle rate, the net present value is positive and the project is accepted. In internal rate of return analysis, if IRR is greater than the hurdle rate, the project is accepted otherwise rejected. Hurdle rate for a particular project is estimated based on a number of factors; the most important being the cost of capital of the company.