Economic Definition of internal rate of return. Defined.
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Term internal rate of return Definition: The anticipated rate of return on a capital investment project undertaken by a business firm. Businesses typically compare the internal rate of return, also termed the marginal efficiency of investment, on physical capital with interest rate returns on financial capital when deciding to undertake an investment project. Because different investment projects have different returns, businesses often have a range of alternatives projects from which to choose. Combining all projects throughout the economy gives rise to an investment demand curve relating investment expenditures to the interest rate.