DISCOUNT RATE vs IRR
What Is The Difference Between Discount Rate and IRR?
In a hurry:
Apply it today:
Discount Rate = what you want to earn
IRR = what the opportunity is expected to earn
You compare what you want against what is estimated
By the end of this episode you’ll learn:
How are they similar?
How are they different?
What happens when they're equal?
Have a few minutes:
When you were younger, you likely had a bedtime. There was the bedtime you wanted. Then, there was the bedtime your parents set for you. Both had to do with when you went to sleep. The difference between them likely caused a lot of debate, negotiation and sometimes argument.
The similarities and differences between Discount Rates and Internal Rates of Return can be summarized in much the same way. Discount Rates and IRR are related topics, sometimes different sides of the same coin. Both help with investment decision making but how they’re calculated and how they’re applied are very different.
In this episode we summarize the similarities and differences of these two “rates”. Then we explore how they’re applied, ending with a brief discussion of what happens when they’re equal. Hint, the answer isn’t always black and white.