The rule of 72 allows you to approximate how many years it takes to double your equity investment at a given IRR.
Alternatively, the rule of 72 allows you to approximate the IRR required to double your equity investment.
The formula is as follows:
Number of years to double = 72% ÷ IRR
OR
IRR = 72% ÷ # of years to double
For example, if a PE firm expects to double their equity investment (ie earning a multiple of capital of 2x) over 3 years, then they would be earning an IRR of approximately 72% ÷ 3 = 24%.
