Have you ever wondered how that smart investment banking kid figures out the Internal Rate of Return (IRR) calculation in his head? Well, you can do it too! Welcome to the world of private equity and venture capital maths! Often used in capital budgeting, it's the interest rate that makes net present value of all cash flow equal zero. The internal rate of return (IRR) is defined as the discount rate that gives a net present value (NPV) of zero for a series of future cash flows. [The NPV is calculated from an annualized cash flow by discounting all future amounts to the present.] But before we do some real brain work, let's try to understand what IRR is all about.