From Investopedia: Internal Rate of Return (IRR) is a metric used in capital budgeting to measure the profitability of potential investments. Internal Rate of Return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does.
Sometimes getting the NPV of a project is not as clear (what does the $362 we had as a result in the exercise at PV-NPV really mean? Is the $362 referring to a Millin dollar investment or a thousand dollar investment? .
IRR will give us something more clear to work with like a return in percentage. IRR Indicates the percentage rate earned on each dollar invested for a specific period.
In any case, both IRR and NPV can be calculated easily using Excel or 10Bii
IRR Excel -IRR( cells in Column B)
In Excel would a formula like =IRR(B2:B10)
What does it mean? It means that investing 250,000 in year 1 and receiving the sum above From year 2 to Year 9 ) will be equivalent to a 5% return more or less – It is up to you if you think 5% is good enough