Money deposited in an interest bearing account has a rate of return. the institution will take that money and reinvest it so they can make money off of it as well.

This rate of return on the internal investment is the internal rate of return, which is usually higher than that paid to the original investor.

Internal Rate of Return

internal rate of return

Internal Rate of Return is used in capital budgeting. Its primary purpose is to better measure the profitability of investments and to compare this profitability.

A change in the required rate of return will affect a project's Internal Rate of Return (IRR) by potentially shifting the project's feasibility. If the required rate of return increases, the project's IRR needs to be higher to be considered acceptable. Conversely, a decrease in the required rate of return could make the project's IRR more attractive.