IRR Calculator
Calculate Internal Rate of Return for investment cash flows
Enter values above to calculate
How to Use
- Enter the initial investment amount (the upfront cost).
- Enter the expected cash inflow for each year/period.
- Add more periods as needed using 'Add Period' (up to 10).
- Click 'Calculate IRR' to find the internal rate of return.
- Compare the IRR to your required rate of return to make the investment decision.
About IRR
What is IRR?
The Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of an investment equal to zero. It represents the effective annual return of the investment. If IRR > your required rate of return (or cost of capital), the investment is worthwhile.
How IRR is Calculated
There is no closed-form formula for IRR — it must be found iteratively. This calculator uses Newton's method: starting with an initial guess, it repeatedly improves the estimate until NPV ≈ 0. The equation is 0 = −Initial Investment + CF1/(1+r) + CF2/(1+r)² + ... + CFn/(1+r)^n, solving for r.
IRR Decision Rule
Accept an investment if IRR > required rate of return (hurdle rate). For example, if your cost of capital is 10% and the project's IRR is 15%, it's a good investment. If IRR is 8%, reject it. IRR is widely used in venture capital, private equity, and corporate capital budgeting.
Limitations of IRR
IRR assumes cash flows are reinvested at the IRR itself, which may be unrealistic for high-IRR investments. Projects with non-conventional cash flows (multiple sign changes) may have multiple IRRs or none. The Modified IRR (MIRR) addresses the reinvestment assumption. Always use IRR alongside NPV for investment analysis.
Key Features
- Newton's method iteration to find IRR with high precision
- Dynamic cash flow input — add up to 10 periods
- Handles both positive and negative cash flows
- Displays no-solution message when convergence fails