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Introduction to IRR

The Internal Rate of Return (IRR) is a financial metric indicating the annual growth rate of an investment. It’s essential for comparing investment opportunities based on profitability.

Purpose in Investments: Helps investors gauge profitability by comparing IRRs across investment options.
Example: For two investments with IRRs of 15% and 20%, the latter generally indicates higher profitability (given comparable risks).

Source: Corporate Finance Institute

IRR Calculator: Key Field Explanations

Scenario Name: Unique identifier to organize different calculation scenarios for easy comparison.
Equity and Loan Percentages: Defines ownership and financing structure, directly impacting risk and return.
Interest Rates: Annual rates on loans, where lower rates improve cash flow by reducing debt service obligations.

Source: Investopedia

Calculation Overview

Net Operating Income (NOI): Income post-expenses, crucial for profitability assessment.
Debt Service: Total loan payments, impacting available cash flow.
Equity Cash Flows: Cash returns to equity holders post-debt service, essential for IRR calculations.

Source: CFI

Key Metrics and Investment Insights

Equity IRR: Reflects annualized return on equity; higher IRRs imply more attractive investments.
Equity Multiple: Total return on equity, shown as a multiple of the initial investment.

Source: Harvard Business Review

Technical Background

NumPy: A Python library for numerical computing, handling large data arrays for financial modeling.
numpy_financial: Extends NumPy with functions for IRR, NPV, and loan payments.

Source: NumPy Documentation

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