Accounting Basics Part 3: Time Value and Internal Rate of Return.

Abstract

Understanding the principles behind the time value of money can help individuals succeed in both business and personal long-term planning. The Internal Rate of Return (IRR) method provides a straightforward way to analyze long-term financial decisions. The result, the project's IRR, is a simple percentage that is easy to explain and compare with the results from other projects. When considering multiple investments, it is relatively simple to rank them by their IRRs, make minor adjustments to the list for qualitative issues, and invest down the list until the funds for the year have been spent.