What does Internal Rate of Return (IRR) & Extended IRR actually represent in finance?
In: Economics
IRR is the interest rate (technically, rate of return) at which your total costs over time matches your total benefits over time.
For instance, if you put in $1,000 today and expect to withdraw $10,000 in 15 years, the IRR would be the interest rate that balances a cost of $1,000 today with the benefit of $10,000 15 years in the future. Obviously, when you do this in a forward-looking way it has to be an estimate.
IRR requires an fixed recurring period, such as monthly or annually. XIRR just lets you use ***any*** dates, and does not require a fixed period.
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