IRR Calculator
Calculate the internal rate of return and NPV for a series of cash flows.
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How the IRR Calculator Works
Our IRR calculator computes the internal rate of return — the annualized rate at which an investment's cash flows break even — for a series of cash flows that includes an initial outlay and subsequent inflows. It also calculates the net present value (NPV) at a discount rate you choose, so you can evaluate whether an investment meets your required return.
What Is IRR?
The Internal Rate of Return (IRR) is the discount rate that makes the net present value of all cash flows equal to zero. In other words, it is the rate at which the present value of cash inflows equals the present value of cash outflows. A higher IRR indicates a more profitable investment, and investors typically compare IRR to their cost of capital or hurdle rate to decide whether to proceed.
0 = CF₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + … + CFₙ/(1+r)ⁿ
Where CF₀ is the initial investment (a negative number), CF₁ through CFₙ are the cash flows in each subsequent year, and r is the IRR. Because there is no algebraic solution for r, the calculator solves it numerically using an iterative method.
IRR vs. NPV
NPV and IRR are closely related. NPV tells you the dollar amount of value created at a specific discount rate, while IRR tells you the percentage return earned. If the IRR is greater than your discount rate, the NPV will be positive, meaning the investment adds value. If the IRR is lower than your discount rate, the NPV is negative and the investment destroys value at that hurdle rate.
Limitations of IRR
IRR assumes that interim cash flows are reinvested at the same rate as the IRR itself, which may not be realistic. It can also produce multiple solutions for cash flows that change sign more than once. For projects with unusual cash flow patterns, consider using the Modified Internal Rate of Return (MIRR) or relying on NPV as the primary decision metric.
When to Use IRR
IRR is most useful for comparing investments of similar size and duration, such as capital projects, private equity deals, or real estate opportunities. It gives a single percentage that is easy to compare against other options. However, for projects of very different scale or length, NPV is generally more reliable because it accounts for the absolute dollar value created.
Tips for Using This Calculator
- Enter the initial investment as a negative number to represent an outflow.
- Use realistic cash flow estimates — overly optimistic projections inflate IRR.
- Compare the IRR to your cost of capital or a benchmark return to judge attractiveness.
- Use the NPV at your discount rate to confirm whether the investment adds value.
- For irregular cash flows, remember that IRR assumes annual compounding.
Frequently Asked Questions
The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from an investment equal to zero. It represents the annualized rate of return earned by the investment.
IRR is found by solving the equation where the sum of cash flows discounted at rate r equals zero. Because there is no closed-form solution, IRR is calculated iteratively using numerical methods such as the Newton-Raphson or bisection method.
A good IRR depends on the investment type, risk, and your required rate of return. Generally, an IRR that exceeds your cost of capital or hurdle rate is considered attractive. For many equity investments, an IRR above 10-15% is viewed as strong.
NPV calculates the dollar value of an investment at a given discount rate, while IRR finds the rate at which NPV equals zero. NPV tells you how much value an investment adds; IRR tells you the percentage return it generates.