IRR Calculator

Calculate the internal rate of return for a series of cash flows. Enter your initial investment and expected cash flows to find the IRR and evaluate investment profitability.

Enter the initial investment as a negative number (cash outflow), followed by expected returns (cash inflows) for each period.

Advanced Options

Starting point for the IRR iteration. Default 10% works for most cases.

IRR Formula

NPV = Σ [ CFt / (1 + r)t ] = 0 For t = 0, 1, 2, ..., n Where: NPV = Net Present Value (set to zero to solve for r) CFt = Cash flow at time t r = IRR (Internal Rate of Return) t = Time period n = Total number of periods Since there is no closed-form solution, IRR is found using numerical methods (Newton-Raphson iteration): rnew = rold − NPV(rold) / NPV'(rold) Where NPV'(r) is the derivative of NPV with respect to r.

Unlike CAGR which only needs a beginning and ending value, IRR handles multiple cash flows at different time periods. This makes it ideal for evaluating investments with irregular income streams, phased contributions, or projects with varying annual returns.

How to Use the IRR Calculator

1

Enter the Initial Investment (Year 0)

This is typically a negative number representing cash outflow. For example, if you invest $100,000, enter −100,000. The calculator pre-fills this as a negative value.

2

Enter Cash Flows for Each Period

Add expected cash inflows (positive numbers) for each year. For example, if you expect $30,000 in Year 1, enter 30,000. Use "Add Row" to add more periods.

3

Remove Unnecessary Rows

Click the trash icon to remove any extra rows you don't need. You must have at least 2 cash flows (initial investment + at least 1 return).

4

Click "Calculate IRR"

The calculator uses Newton-Raphson iteration to find the IRR, then displays the result along with NPV verification and a detailed cash flow breakdown.

Example Calculation

$100,000 investment with 5 years of cash flows

Year Cash Flow Type
0−$100,000Investment
1$25,000Return
2$30,000Return
3$35,000Return
4$30,000Return
5$40,000Return

Step 1: Set up the NPV equation

NPV = −100,000 + 25,000/(1+r)¹ + 30,000/(1+r)² + 35,000/(1+r)³ + 30,000/(1+r)⁴ + 40,000/(1+r)⁵ = 0

Step 2: Solve iteratively using Newton-Raphson method

Starting with guess r = 10%, the algorithm iterates:

Iteration 1: r = 10.00% → NPV = $10,398.76
Iteration 2: r = 13.07% → NPV = $1,432.18
Iteration 3: r = 13.52% → NPV = $126.54
Iteration 4: r = 13.54% → NPV = $0.41
Iteration 5: r = 13.54% → NPV ≈ $0.00 ✓

Result: IRR = 13.54%

Total Cash Inflows: $160,000

Net Profit: $60,000

If your cost of capital is less than 13.54%, this investment is profitable.

Understanding the Results

IRR (Internal Rate of Return)

The discount rate that makes the NPV of all cash flows equal to zero. An IRR of 13.54% means the investment effectively earns 13.54% per year. If your required rate of return (hurdle rate) or cost of capital is below 13.54%, the investment creates value.

NPV Verification

The calculator verifies the IRR by computing NPV at the found rate. If NPV is very close to $0 (within rounding tolerance), the IRR is accurate. This confirms the calculation is correct.

Total Inflows vs. Outflows

The sum of all positive cash flows minus the initial investment gives you the net profit in dollar terms. While useful, this doesn't account for the time value of money — which is exactly what IRR does.

Decision Rule

Accept the investment if IRR > required rate of return (hurdle rate). Reject if IRR < hurdle rate. When comparing multiple investments, the one with the higher IRR is generally preferred — but always consider NPV and scale alongside IRR for a complete picture.

Key Definitions

IRR

Internal Rate of Return — the discount rate that makes NPV equal to zero, representing the annualized return of an investment.

NPV

Net Present Value — the sum of all future cash flows discounted to present value. Positive NPV means the investment adds value.

Cash Flow

Money received (positive) or paid out (negative) at a specific point in time. Year 0 is typically the initial investment.

Discount Rate

The rate used to discount future cash flows to present value. In IRR calculation, this is the unknown we solve for.

Hurdle Rate

The minimum acceptable rate of return for an investment. If IRR exceeds the hurdle rate, the investment is acceptable.

Newton-Raphson Method

An iterative numerical technique used to find the root of a function. Applied here to solve NPV = 0 for the discount rate.

Frequently Asked Questions

IRR (Internal Rate of Return) 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 effective compounded return rate that the investment is expected to generate. IRR is widely used in capital budgeting to evaluate the profitability of investments and compare multiple projects.
CAGR measures growth between exactly two values (beginning and ending) over a period. IRR handles multiple cash flows at different time periods, making it suitable for investments with irregular income streams, multiple contributions or withdrawals, or phased returns. Use CAGR for simple growth comparisons; use IRR for complex cash flow analysis.
A "good" IRR is one that exceeds your required rate of return (hurdle rate) or cost of capital. For most businesses, an IRR above 10–15% is considered strong. Venture capitalists often target 25–30%+ IRR. Real estate investments typically target 8–15%. Always compare IRR against your specific hurdle rate, not against an arbitrary benchmark.
Yes. A negative IRR means the investment loses money on an annualized basis. The total cash inflows are less than the initial investment when accounting for the time value of money. A negative IRR clearly signals that the investment should be rejected, as it destroys value.
IRR has several limitations: (1) It assumes all interim cash flows are reinvested at the IRR rate, which may be unrealistic — MIRR addresses this. (2) For non-conventional cash flows (sign changes more than once), multiple IRRs may exist. (3) It doesn't consider the absolute scale of investment — a $1,000 investment with 50% IRR earns less than a $100,000 investment with 20% IRR. (4) It can lead to incorrect decisions when comparing mutually exclusive projects of different sizes. Always use NPV alongside IRR.
Use IRR when you need a single percentage to communicate return to stakeholders, or when comparing projects of similar scale. Use NPV when you need to measure the absolute dollar value created, or when comparing mutually exclusive projects of different sizes. NPV is generally considered the more reliable metric because it doesn't have the reinvestment rate assumption problem. Best practice: use both together.
In Excel or Google Sheets, use the =IRR() function. Enter your cash flows in a range of cells (e.g., A1:A6), then use =IRR(A1:A6). The first value should be the negative initial investment. You can optionally provide a guess: =IRR(A1:A6, 0.1). For non-annual periods, use =XIRR() with specific dates.

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