Internal rate of return: Good and bad features, and a new way of interpreting the historic measure

•IRR-most-used profitability measure, but nonlinear, non-analytic & w/o para-meters.•Attempts to make IRR more useful/realistic actually have confused the situation.•Despite IRR's issues, a new measure, NPV%, can help yield more information.•E.g., effect of Enterprise ROR on NPV% can be interpreted wrt IRR (both fcns of ROIBT).•But, better approach is to use NPV% directly and obtain its many advantages.

IRR, a widely used profitability measure, is the Discount Rate that yields Net Present Value (NPV) = 0 for a stream of positive and negative cash flows, at least one of each sign and with no explicit financing payments. A big disadvantage is lack of parameters, such as a project finance rate or the enterprise rate (ER), i.e., Return on Investment of the overarching investment group to serve as a measure of opportunity cost. The coupled metrics proposed earlier by the author- NPVproject and NPV%-do not suffer these disadvantages, so IRR is analyzed in terms of NPV%. Useful information can be obtained from a projection of IRR values onto the NPV%, ER plane revealing the sensitivity of IRR to risk under meaningful operating conditions.