IRR Calculator
Calculate the Internal Rate of Return for your investments and projects
The upfront cost of your investment
Enter the expected cash inflow for each year
Minimum acceptable return rate for the investment
Internal Rate of Return (IRR)
%
IRR (%) Hurdle Rate (%)
IRR Scale
NPV at Hurdle Rate
At % discount rate
Total Cash Inflows
Sum of all returns
Total Return
%
Simple ROI
Payback Period
years
Time to recover investment
Profitability Index (PI)
PI = Present Value of Inflows / Initial Investment
✓ PI > 1 indicates a value-creating investment ✗ PI < 1 indicates the investment may destroy value
Cash Flow Summary
| Period | Cash Flow | Cumulative |
|---|---|---|
| Year 0 (Initial) | - | - |
| Year | + |
IRR Rating Reference
| Rating | IRR Range | Typical Investments |
|---|---|---|
| Excellent | 25%+ | Venture capital, high-risk startups |
| Strong | 15-25% | Private equity, growth investments |
| Good | 10-15% | Real estate, diversified portfolios |
| Fair | 5-10% | Conservative investments, bonds |
| Poor | 0-5% | Below market returns |
| Loss | < 0% | Investment loses money |
If you like this calculator
Please help us simply by sharing it. It will help us a lot!
Related Calculators
Other calculators you might find useful.
Estate Tax Calculator
Calculate federal estate tax liability and plan your estate effectively
Investment Calculator
Calculate how your investments will grow over time with compound interest
Mortgage Calculator
Calculate your monthly mortgage payments, total interest, and amortization schedule
Tip Calculator
Calculate precise tips and split bills easily among friends
FHA Loan Calculator
Calculate your FHA mortgage payments including MIP, down payment, and total costs
Amortization Calculator
Calculate your loan amortization schedule with detailed payment breakdown
About IRR Calculator
What is Internal Rate of Return (IRR)?
The Internal Rate of Return (IRR) is a financial metric used to estimate the profitability of potential investments. It represents the discount rate at which the Net Present Value (NPV) of all cash flows equals zero. In simpler terms, IRR is the expected compound annual rate of return an investment will generate.
How to Use This Calculator
- Enter Initial Investment: The upfront cost of your investment (negative cash flow)
- Add Cash Flows: Enter expected returns for each period
- Set Number of Periods: How many years/periods the investment spans
- Review Results: See your IRR percentage and NPV at various discount rates
Understanding IRR Calculation
The IRR Formula
IRR is found by solving for r in the NPV equation:
0 = CF₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ
Where:
- CF₀ = Initial investment (usually negative)
- CF₁ to CFₙ = Cash flows in each period
- r = Internal Rate of Return
- n = Number of periods
Newton-Raphson Method
Since IRR cannot be solved algebraically for most cash flow patterns, iterative methods like Newton-Raphson are used to find the rate that makes NPV = 0.
When to Use IRR
| Scenario | Best Use | Limitations |
|---|---|---|
| Capital Budgeting | Compare project profitability | Assumes reinvestment at IRR |
| Private Equity | Evaluate fund performance | Multiple IRRs possible |
| Real Estate | Compare property investments | Ignores project scale |
| Business Valuation | Assess acquisition targets | Can conflict with NPV |
IRR vs Other Metrics
| Metric | Measures | Advantage | Disadvantage |
|---|---|---|---|
| IRR | Return rate | Easy to compare | Reinvestment assumption |
| NPV | Dollar value added | Absolute value | Needs discount rate |
| Payback | Time to recover | Simple | Ignores time value |
| ROI | Total return | Intuitive | Ignores timing |
Decision Rules
Accept/Reject Criteria
- Accept if IRR > Required Rate of Return (hurdle rate)
- Reject if IRR < Required Rate of Return
- Indifferent if IRR = Required Rate of Return
Comparing Multiple Projects
- Higher IRR doesn't always mean better investment
- Consider NPV for projects of different sizes
- Use Modified IRR (MIRR) for unconventional cash flows
Common IRR Benchmarks
| Investment Type | Typical IRR Range | Risk Level |
|---|---|---|
| Treasury Bonds | 3-5% | Very Low |
| Corporate Bonds | 5-8% | Low |
| Real Estate | 8-15% | Medium |
| Private Equity | 15-25% | High |
| Venture Capital | 25-50%+ | Very High |
Limitations of IRR
Multiple IRRs
When cash flows change signs multiple times, multiple IRR solutions may exist. Use NPV or MIRR instead.
Reinvestment Assumption
IRR assumes all cash flows are reinvested at the IRR rate, which may not be realistic. MIRR addresses this by using a separate reinvestment rate.
Scale Differences
IRR doesn't account for investment size. A 50% return on $100 is less valuable than 20% return on $1 million.
Frequently Asked Questions
What is a good IRR?
A good IRR depends on the investment type and risk level. Generally, an IRR above your cost of capital or hurdle rate is considered acceptable. For most investments, 10-20% is solid, while venture capital typically targets 25%+.
How is IRR different from ROI?
ROI measures total return regardless of time, while IRR accounts for the time value of money. A 100% ROI over 10 years has a lower IRR than 100% ROI over 2 years.
Can IRR be negative?
Yes, a negative IRR means the investment lost money overall. This happens when the sum of cash inflows is less than the initial outflow.
Why doesn't my investment have an IRR?
Some cash flow patterns don't have a valid IRR solution. This occurs when there's no rate that makes NPV equal zero, often with unusual cash flow patterns.
Should I always choose the project with highest IRR?
Not necessarily. Consider NPV, project scale, risk level, and strategic fit. A smaller project with high IRR may create less value than a larger project with moderate IRR.
Note: This calculator provides estimates for educational purposes. Investment returns involve risk and actual results may vary. Consult a financial advisor for investment decisions.
Investment Analysis Tips
📈 When to Use IRR
- • Comparing projects with similar risk profiles
- • Evaluating capital budgeting decisions
- • Assessing private equity investments
⚠️ IRR Limitations
- • Assumes reinvestment at IRR rate
- • May give multiple solutions
- • Doesn't account for project scale