The net present value (NPV) of a project is the difference between
the sum of the discounted cash flows which are expected from the
investment and the amount which is initially invested. A trial and
error method was used to establish the interest rate to be applied to
the cash flow each year, such that the original investment would be
reduced to zero (or salvage value, plus land, plus working capital)
during the useful life of the project. Internal rate of return, r, is
calculated by trial and error: