Lecture
This lecture explains the concept of internal rate of return (IRR) through a simple example involving two investment scenarios. By comparing the present values of cash flows, it demonstrates how choosing one scenario over another can lead to higher profitability. The instructor also discusses the interpretation of IRR for additional investments, calculating the differential cash flows between scenarios, and determining the total cost and additional revenues involved. Ultimately, the lecture concludes with the calculation of the IRR for the second scenario, highlighting the significant difference in returns compared to the initial scenario.