(also known as discounted cash flow) A calculation used in investing and certain business applications. It assumes an established interest rate, to be applied to the time value of money and returns over a period of time.For investors, the assumed rate of interest is what it is believed the investor could earn in outside investments. Thus, periodic cash flow is calculated on the basis of the present value of the assumed rate. In business applications, the assumed rate is an investment rate (for the business), often tied to historical percentages of net profit. In both instances, the assumed rate of return could be untypical in a changing investment or business environment. When IRR is used, the assumed rate should be applied consistently to all possible outcomes in the study.
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