A capital budgeting method under which the financial manager first calculates the discount rate that would equate the present value of the net cash inflow with the amount of the investment. If this discount rate is less than the firm’s cost of capital or some other desired minimum return, the investment is not worthwhile. If the discount rate equals or exceeds this desired minimum return. The investment may be worthwhile but its internal rate is return must be compared with the corresponding returns on other possible investments.