IRR Calculator
Calculate the Internal Rate of Return (IRR), Net Present Value (NPV), and payback period for an investment with up to 6 years of cash flows.
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How to use this calculator
IRR is the discount rate (r) that makes NPV equal to zero. Solved via Newton-Raphson iteration. I = initial investment, CF = cash flow per period.
- 1
Enter the initial investment amount (the upfront cost, as a positive number).
- 2
Enter the expected cash inflows for each year — enter 0 for years with no cash flow.
- 3
The calculator solves for IRR iteratively and also shows payback period and simple ROI.
- 4
Compare the IRR against your required rate of return (hurdle rate) — invest if IRR > hurdle rate.
Frequently asked questions
What is a good IRR?
It depends on the investment type and risk. Real estate: 8–12%. Private equity: 15–25%+. Stock market benchmark: ~10% historical average. The IRR should exceed your cost of capital (hurdle rate). If your cost of capital is 8% and IRR is 12%, the investment creates value.
What is the difference between IRR and NPV?
NPV tells you the absolute dollar value an investment adds at a specific discount rate. IRR tells you the percentage return. Use NPV for comparing mutually exclusive projects (pick the higher NPV). Use IRR for quick profitability screening against a hurdle rate. They can give conflicting rankings — NPV is theoretically more reliable.
Can IRR have multiple values?
Yes — for projects with non-conventional cash flows (where the sign changes more than once), there can be multiple IRRs. In such cases, use NPV as the primary decision metric. This calculator finds the first IRR near 10% using Newton-Raphson, which works well for most standard investment patterns.
What does a negative IRR mean?
A negative IRR means the investment does not recover the initial outlay from the projected cash flows. The total undiscounted cash inflows are less than the investment — a loss. Reconsider the project or look for ways to improve cash flows.
IRR explained: the investor's essential metric
How IRR is calculated
IRR is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. There is no closed-form algebraic solution — it is solved iteratively. The Newton-Raphson method starts with an initial guess and refines it until the NPV is within a tiny tolerance of zero. Most financial calculators and spreadsheets use similar iterative algorithms.
IRR vs CAGR: key differences
CAGR (Compound Annual Growth Rate) measures how an investment grew from start to finish assuming smooth compounding — it ignores intermediate cash flows. IRR accounts for the timing and size of every cash flow, making it more accurate for investments with irregular income. For a single lump-sum investment held to maturity, IRR and CAGR are equivalent.
Modified IRR (MIRR): fixing IRR's weakness
Standard IRR assumes that interim cash flows are reinvested at the IRR itself, which is often unrealistic. Modified IRR (MIRR) allows you to specify a realistic reinvestment rate (typically your cost of capital) for intermediate cash flows. MIRR is generally more conservative and actionable. For most practical purposes, the difference between IRR and MIRR is small when IRR is close to the cost of capital.
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