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LSDefine
Simple English definitions for legal terms
IRR
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A quick definition of IRR:
The IRR, or internal rate of return, is a way to figure out how much money you can make from an investment over time. It's like a percentage that tells you how much profit you can expect to earn each year. For public utilities, there is a fair rate of return that they are allowed to earn, as determined by a public utility commission. The IRR is calculated using a discounted-cash-flow method to evaluate a long-term project and determine the actual return on an investment.
A more thorough explanation:
IRR stands for internal rate of return. It is a financial term used to evaluate the profitability of an investment. It is calculated as a percentage of the investment's annual income.
Rate of return is the annual income earned from an investment, expressed as a percentage of the investment. For example, if you invest $100 and earn $10 in a year, your rate of return is 10%.
Fair rate of return is the amount of profit that a public utility is allowed to earn, as determined by a public utility commission. For instance, if a utility company is allowed to earn a 10% fair rate of return, it means that it can earn a profit of 10% on its investments.
Internal rate of return is a discounted-cash-flow method used to evaluate the profitability of a long-term project. It helps to determine the actual return on an investment. For example, if you invest $100 in a project and earn $20 in the first year, $30 in the second year, and $50 in the third year, the internal rate of return will be calculated based on these cash flows.
Overall, IRR is an important financial metric used to evaluate the profitability of an investment or project. It helps investors to make informed decisions about where to invest their money.