The IRR of an investment is the discount rate at which the net present value of costs (negative cash flows ) of the investment equals the net present value of the benefits (positive cash flows) of the investment. The higher a project's IRR, the more desirable it is to undertake the project.

Can the IRR be negative?

Negative IRR occurs when the aggregate amount of cash flows caused by an investment is less than the amount of the initial investment. In this case, the investing entity will experience a negative return on its investment.

When can IRR not be used?

If the IRR is above the discount rate, the project is feasible. If it is below, the project is considered not doable. If a discount rate is not known, or cannot be applied to a specific project for whatever reason, the IRR is of limited value.