Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first."
The equation to calculating the internal rate of return is a complex one, based primarily on the value of the initial investment:
In the case of the first investment project, the equation to calculating the IRR would be as follows:
130 = 25 / (1 + r) 1 + 35 / (1 + r) 2 + 45 / (1 + r) 3 + 50 / (1 + r) 4 + 55 / (1 + r) 5
For project B, the equation is:
85 = 40 / (1 + r) 1...
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