Short answer
IRR is the discount rate that makes NPV zero. Unusual cash flows can have multiple or no meaningful roots, so also compare NPV at your required discount rate.
Important variables
- Effective rate and fees
- Same comparison horizon
- Tax, cost and risk
- Remaining debt or ending wealth
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Worked example
−€10,000 today and +€12,000 in two years gives about 9.54% IRR. It does not prove intermediate cash can be reinvested at 9.54%.
Break-even: What changes the result?
Test the main driver as a cautious, central and optimistic range. Also check whether the ranking reverses at a crossover or remains robust across the range.
Common mistakes
- Equating low payment with low cost
- Equating certain interest saving with uncertain return
- Mixing nominal and real values
Terms in this guide
Sources & assumptions
- European Central Bank — Monetary policy decisions, 23 July 2026 (2026-08-17)
- RATIOXA — Methodology and formulas (2026-08-17)
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