The IRR is the interest rate (r) where a project's net present value (NPV) is zero. IRR can be used to decide whether a project is profitable, if the NPV curve:
- is downward sloping, then accept when IRR>r
- is upward sloping, then accept when IRR<r
Extending this simple
observation for cases where the NPV curve crosses the zero more than once is trivial. Accepting a project when the NPV is positive is much less complex and yields the equivalant result.