Internal Rate of Return (IRR)

Iterative calculation, no closed-form solution — Excel's IRR/XIRR functions or financial calculators required. Use cases: rental-property analysis (account for purchase, monthly cash flow, refinances, sale), private-equity investments (capital calls and distributions over years), business projects with uneven year-over-year cash flows. Key advantage over CAGR: handles intermediate cash flows correctly. Limitation: assumes intermediate cash flows are reinvested at the IRR (often unrealistic — MIRR addresses this with separate reinvestment rate). Two IRR pitfalls: non-conventional cash flows (signs change more than once) can produce multiple IRRs or none; very high IRRs (100%+) are usually computational artifacts, not real returns.