Which range is generally considered an acceptable Internal Rate of Return (IRR)?

The rationale behind identifying the range of 5% to 10% as generally considered an acceptable Internal Rate of Return (IRR) stems from the typical benchmarks used in finance for assessing investment opportunities. This range reflects a conservative approach to evaluating investments, particularly in stable or low-risk environments, where the cost of capital and market expectations are more modest.

Investors often utilize the IRR to determine the profitability of an investment compared to other available options. A range of 5% to 10% suggests that while the investment is yielding returns that exceed the risk-free rate (typically represented by government bond yields), they still remain reasonable when considering more standard market returns.

In many industries, investments are expected to generate returns that exceed this range, with higher IRRs (like those in the 15% to 20% or even 20% to 25% ranges) often associated with higher risk ventures or more volatile markets. However, for more stable investments, the IRR range of 5% to 10% provides a benchmark that aligns well with reasonable expectations for return without taking excessive risks.