The internal rate of return (IRR) for a project can be defined as the discount rate that offers zero net present value (NPV) or the rate where the present value of the initial investment or cash outflows is the same amount as the present value of the future cash inflows that are associated with a project.
Calculating the IRR for a series of cash flows requires a basic formula that looks something like the one in the image below (click to enlarge).
Notice that the IRR formula does not define the period for each cash flow. This means that the IRR can be calculated for a year, a month, a week, or even a day as long as the person performing the calculations remembers what period was used in each calculation.
In the case a monthly IRR is calculated, the period could be a week, a day, or any other defined period in hours or minutes, depending on the nature of the cash flows that are involved.
IRR is used to make budgeting decisions when deciding which (if any) projects are to be adopted. Many organizations have a required rate of return that projects must meet in order to be funded. If a project is shown to exceed that rate of return (also called the hurdle rate), the project can be considered for funding. Any project that fails to exceed the hurdle rate is normally declined.