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IRR Calculator

Quick answer

This calculator computes Internal Rate of Return for investment projects.

  • Formula: IRR = Discount rate where NPV equals zero.
  • Free, instant, no sign-up required.

Figures are estimates from this calculator’s standard formula — adjust the inputs in the tool below for your exact number.

How IRR Calculation Works

IRR = Discount rate where NPV equals zero

IRR (Internal Rate of Return) is the discount rate that makes the net present value of all cash flows equal to zero. It represents the annualized rate of return on an investment, allowing comparison between projects of different sizes and durations.

  1. 1

    Step 1

    Enter the initial investment amount (as a negative cash flow)

  2. 2

    Step 2

    Input expected cash flows for each future year

  3. 3

    Step 3

    Calculator iteratively finds the rate where NPV = 0

  4. 4

    Step 4

    Result shows the IRR as an annual percentage

  5. 5

    Step 5

    Compare IRR to your required return or cost of capital

Use Cases

Project Ranking

Rank multiple investment opportunities by their IRR to identify highest-return options for capital allocation.

Investment Hurdle Rate

Compare project IRR to company's hurdle rate (cost of capital) to determine if investment meets return requirements.

Private Equity Returns

Calculate and report returns to investors in private equity and venture capital investments.

Real Estate Analysis

Evaluate property investments by calculating IRR including purchase, rental income, and sale proceeds.

Tips

  • 1

    IRR above your cost of capital indicates value-creating investment

  • 2

    Compare IRR to NPV - they can give different rankings for mutually exclusive projects

  • 3

    Be cautious with IRR for projects with alternating positive/negative cash flows

  • 4

    Modified IRR (MIRR) addresses reinvestment rate assumptions

  • 5

    Use IRR for comparing similar-sized projects; NPV for absolute value creation

Common Mistakes

  • Assuming Reinvestment at IRR

  • Multiple IRR Problem

  • Ignoring Scale

  • Comparing Different Duration Projects

FAQs

What is a good IRR?

Depends on risk and alternatives. Generally: above risk-free rate (3-5%) is minimum, above cost of capital (8-12%) is acceptable, above 15-20% is good for most investments.

What's the difference between IRR and ROI?

ROI is simple total return (profit/cost). IRR accounts for time value of money and timing of cash flows. IRR is annualized; ROI is total return regardless of period.

When should I use IRR vs NPV?

Use both. IRR tells return rate; NPV tells dollar value created. For mutually exclusive projects, NPV is preferred. For quick comparison, IRR is useful.

What is Modified IRR (MIRR)?

MIRR assumes cash flows are reinvested at cost of capital rather than at IRR. It's more realistic for high-IRR projects and avoids multiple IRR issues.

Why can't IRR be calculated for my project?

IRR requires at least one sign change in cash flows (typically negative investment followed by positive returns). All positive or all negative flows have no IRR.

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