IRR is the discount rate that makes NPV exactly zero — the project's break-even rate of return.
Try this
10
Project: −$1,000 now, then +$300, +$400, +$500, +$300. IRR is the rate where NPV = $0 — slide until it hits zero. = —
Finding IRR
There's no neat formula — you solve NPV = 0 by trial and error (or let a spreadsheet do it). Slide the rate above: too low and NPV is positive, too high and it goes negative. The crossover is the IRR.
Decision rule: if IRR > your cost of capital, the project clears the bar. If it's below, walk away.
Watch out
IRR can be misleading when comparing projects of very different size or with cash flows that flip sign more than once. When in doubt, rank by NPV instead.
Compare IRR to your cost of capital. If IRR > cost of capital, do it.