Overview · What & why
A decision, before a calculation.
Net present value adds discounted cash flows at a chosen return requirement. IRR finds the rate that makes that sum zero. XIRR does the same with actual dates. They describe cash-flow timing, not the quality of the assumptions. A project can show a high IRR but create little total value, so review NPV and invested capital alongside it.
A concrete example
Invest $1M today and receive $1.21M in two years. The annual IRR is 10%. At an 8% discount rate, NPV is $37,379.97. Changing the exit date affects XIRR even when the same proceeds are received.
What to remember
Always ask which cash flows and dates a reported return includes.
Before using this in a project: Complete contributions, interim receipts, sale costs, payoff amounts and actual or assumed dates.