IRR Calculator
Free IRR calculator to evaluate investment returns. Enter cash flows manually, paste from Excel, or generate patterns. Get instant IRR, NPV analysis, and visual breakdowns.
IRR will be calculated as annual rate.
Add a terminal or salvage value if you expect to sell the asset or recover capital at the end of the investment period. This amount will be added to the last period's cash flow.
The minimum return rate you require for the investment to be worthwhile.
IRR
NPV @ 10%
Payback Period
| Period | Cash Flow | PV Factor | Present Value | Cumulative |
|---|---|---|---|---|
| Initial | -$100,000 | 1.0000 | -$100,000 | -$100,000 |
| Year 1 | $30,000 | 0.8540 | $25,621 | -$70,000 |
| Year 2 | $35,000 | 0.7293 | $25,527 | -$35,000 |
| Year 3 | $40,000 | 0.6229 | $24,915 | $5,000 |
| Year 4 | $45,000 | 0.5319 | $23,937 | $50,000 |
Investment Appears Favorable
The IRR of 17.09% exceeds your hurdle rate of 10%, suggesting this investment could meet your return requirements. The NPV is $16,987.
Related Calculators
How to Use This IRR Calculator
Our IRR calculator offers three flexible input modes designed to make entering cash flows as easy as possible, whether you're evaluating a simple investment or a complex multi-year project.
Manual Entry
Add cash flows one by one. Perfect for precise control over each period. Your initial investment should be negative (Period 0).
Quick Entry
Paste cash flows directly from Excel or as comma-separated values. The fastest way to import existing projections.
Pattern Generator
Generate equal, growing, or terminal-value patterns automatically. Ideal for modeling standardized investment scenarios.
Period Type
Choose between Annual or Monthly periods. When using monthly periods, the calculator shows both the monthly IRR and the annualized equivalent, making it easy to compare with annual benchmarks.
Recovery Value
Use this optional field to add a terminal or salvage value when you expect to sell an asset or recover capital at the end. The amount is automatically added to the last period's cash flow.
Pro Tip: Quick Excel Import
Copy a column of cash flows from Excel (including your initial investment as a negative number), switch to Quick Entry mode, paste, and click Load. The calculator will automatically parse your data.
What is IRR (Internal Rate of Return)?
The Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of all cash flows from an investment equal to zero. In simpler terms, IRR represents the expected annual growth rate of an investment and is one of the most widely used metrics in capital budgeting and investment analysis.
When evaluating potential investments, comparing the IRR to your required rate of return (hurdle rate) helps determine whether a project is worth pursuing. If the IRR exceeds your hurdle rate, the investment is generally considered attractive.
Key Characteristics of IRR
- Percentage Return: IRR expresses returns as an annualized percentage, making it easy to compare across different investments.
- Time Value of Money: IRR accounts for the fact that money received today is worth more than money received in the future.
- Break-even Rate: IRR is the rate at which an investment breaks even in present value terms.
- Decision Metric: Compare IRR to your cost of capital to make accept/reject decisions on projects.
IRR Formula: How to Calculate IRR
Understanding how to calculate IRR starts with the NPV formula. The IRR is the rate (r) that makes this equation equal to zero:
The IRR Calculation Formula
- CF₀, CF₁, ... CFₙ = Cash flows in each period (negative for outflows, positive for inflows)
- r = The IRR we're solving for
- n = Number of periods
Unlike simpler financial calculations, there's no direct algebraic solution for IRR. The formula of IRR calculation requires iterative numerical methods. Our calculator uses the Newton-Raphson method with a bisection fallback to find the precise IRR value.
Why IRR Requires Iteration
The IRR equation is a polynomial of degree n, where n is the number of periods. For most real-world investments with more than 2 periods, this polynomial cannot be solved algebraically, which is why calculators use numerical approximation methods.
Example: IRR Calculation Step by Step
Let's calculate the IRR for an investment with these cash flows:
Year 0
-$100,000
Year 1
$30,000
Year 2
$40,000
Year 3
$50,000
Result: IRR ≈ 8.9%
This means if you use 8.9% as your discount rate, the NPV equals zero. The investment is worthwhile if your required return is below 8.9%.
IRR vs NPV: Understanding the Difference
Both IRR and NPV are fundamental tools for investment analysis, but they answer different questions and have distinct use cases.
| Aspect | IRR | NPV |
|---|---|---|
| Output | Percentage return | Dollar value |
| Question Answered | "What rate of return does this generate?" | "How much value does this create?" |
| Best For | Comparing to hurdle rate | Comparing project sizes |
| Requires Discount Rate | No (it calculates it) | Yes (you provide it) |
| Reinvestment Assumption | At the IRR rate | At the discount rate |
When to Use IRR
- Comparing investments to a required return threshold
- Communicating returns to stakeholders in percentage terms
- Ranking mutually exclusive projects of similar scale
- Evaluating private equity or venture capital investments
When to Use NPV
- Comparing projects of different sizes
- When you have a clear cost of capital
- Determining absolute value creation
- Capital budgeting decisions with limited funds
When to Use IRR Analysis
IRR is particularly valuable in specific investment scenarios where percentage returns matter most.
Real Estate
Evaluate rental properties, development projects, and REITs by comparing IRR to typical real estate benchmarks (15-20% for development, 8-12% for core properties).
Capital Projects
Assess equipment purchases, facility expansions, and manufacturing investments against corporate hurdle rates (typically 12-15% for industrial companies).
Startups & PE
Private equity and venture capital use IRR extensively. Early-stage investments target 25-35% IRR, while buyout funds typically aim for 20-25%.
IRR Limitations and Considerations
While IRR is a powerful metric, it has limitations that every investor should understand.
Multiple IRRs Problem
When cash flows change sign multiple times (e.g., investment, returns, then more investment), there can be multiple IRR values that satisfy the equation. This commonly occurs in oil & gas projects or real estate developments with phased investments.
Reinvestment Rate Assumption
IRR assumes all interim cash flows are reinvested at the IRR rate, which may be unrealistic for very high IRRs. The Modified IRR (MIRR) addresses this by using a more realistic reinvestment rate.
Scale Blindness
A $10,000 investment with 50% IRR creates less value than a $1,000,000 investment with 20% IRR. Always consider absolute returns (NPV) alongside percentage returns when making investment decisions.
Practical IRR Examples
Example 1: Rental Property Investment
An investor purchases a rental property and plans to sell after 5 years:
- Year 0: -$200,000 (purchase price + closing costs)
- Years 1-5: $18,000/year (net rental income)
- Recovery Value: $250,000 (expected sale proceeds)
💡 Tip: Enter $18,000 for each year, then use the Recovery Value field for the $250,000 sale proceeds — the calculator adds it to Year 5 automatically.
Result: IRR ≈ 12.8% — Attractive for a real estate investment with moderate risk
Example 2: Equipment Purchase
A manufacturing company considers new equipment:
- Year 0: -$500,000 (equipment cost)
- Years 1-7: $100,000/year (labor savings + efficiency gains)
- Recovery Value: $50,000 (salvage/resale value)
💡 Tip: Use the Pattern Generator with "Equal" pattern for the $100k annual savings, then add the salvage value in the Recovery Value field.
Result: IRR ≈ 11.3% — Compare to company's WACC (typically 8-12%)
Example 3: Startup Investment
A venture investor evaluates a Series A opportunity:
- Year 0: -$2,000,000 (Series A investment)
- Years 1-4: $0 (company reinvests all revenue)
- Year 5: $10,000,000 (exit via acquisition)
Result: IRR ≈ 37.9% — Meets typical VC hurdle of 25-30%
Frequently Asked Questions: IRR Calculator
What is a good IRR?
A "good" IRR depends on the investment type and risk level. Generally, the IRR should exceed your cost of capital or hurdle rate. For private equity, 20-30% is typical. Real estate investors often target 15-20%. For corporate projects, beating the company's weighted average cost of capital (WACC) of 8-12% is usually sufficient.
How is IRR different from ROI?
ROI (Return on Investment) is a simple ratio of total gains divided by the investment, ignoring when cash flows occur. IRR accounts for the time value of money, treating $100 received today as more valuable than $100 received in 5 years. This makes IRR more accurate for comparing investments with different timing patterns.
Can IRR be negative?
Yes, IRR can be negative. A negative IRR indicates the investment loses money on a present value basis — the sum of discounted cash inflows is less than the initial outlay. This typically signals a poor investment unless there are strategic reasons (market entry, defensive positioning) to accept losses.
What if there are multiple IRRs?
Multiple IRRs can occur when cash flows change direction more than once (e.g., negative, positive, negative again). In such cases, consider using NPV analysis instead, or MIRR (Modified IRR) which handles this situation better. Our calculator warns you when this might be an issue.
How accurate is this IRR calculator?
Our calculator uses professional-grade numerical methods (Newton-Raphson with bisection fallback) to calculate IRR with high precision. Results are accurate to 0.01%. However, remember that IRR is only as good as your cash flow projections — always use realistic estimates and consider multiple scenarios.
What is the hurdle rate?
The hurdle rate is your minimum required rate of return for an investment. It's often set at your cost of capital plus a risk premium. If the IRR exceeds the hurdle rate, the investment is typically considered acceptable. Use our calculator's hurdle rate slider to compare your project's IRR against your requirements.
Can I calculate monthly IRR instead of annual?
Yes! Use the Period Type selector to switch between Annual and Monthly periods. When you choose Monthly, the calculator computes the monthly IRR and automatically converts it to an annualized rate using the formula: (1 + monthly_IRR)^12 - 1. This is useful for short-term projects, monthly rental income analysis, or comparing investments with different timeframes.
What is the Recovery Value field for?
The Recovery Value (or Terminal Value) field is for investments where you expect to recover capital at the end — such as selling a property, liquidating equipment, or exiting an investment. Instead of manually adding it to your last cash flow, enter it separately and the calculator adds it automatically. This keeps your operating cash flows clean and makes scenario analysis easier.
Ready to Analyze Your Investment?
Use our free IRR calculator above to evaluate your investment opportunities. Enter your cash flows using any of our three input methods and get instant IRR, NPV, and payback analysis.