IRR Calculator

IRR: Internal Rate of Return

IRR (Internal Rate of Return) is the discount rate that makes the NPV of a project equal to zero: Σ CFₜ / (1 + IRR)ᵗ = I₀. There is no closed-form solution — it's computed iteratively (Newton-Raphson, bisection). Decision rule: compare IRR with the hurdle rate (MARR/TMA); IRR > hurdle → accept, otherwise reject. Example: cash flows of −1,000 today, +600 at year 1, +600 at year 2 → IRR ≈ 13.07%. Limitations: multiple IRRs can exist when cash flows change sign more than once, and IRR implicitly assumes reinvestment at its own rate (often unrealistic). MIRR (Modified IRR) addresses both issues by using an explicit reinvestment rate.

Applications and context

IRR is widely used to compare alternative investments and as a quick financial-decision shortcut: real estate funds (FIIs), M&A, private equity, project finance, and feasibility analysis. It expresses return as a percentage, which is intuitive — but for mutually exclusive projects with different scales or horizons, NPV is the safer call.

FAQ

Can a project have more than one IRR? Yes — whenever the cash-flow sign changes more than once (e.g. invest, profit, invest again). In those cases use MIRR or rely on NPV.

IRR vs NPV — which wins? NPV is preferred for ranking and accept/reject decisions. IRR is convenient for communication because it's expressed as a rate.

What's a "good" IRR? Any IRR comfortably above the hurdle rate or the cost of capital, with a margin proportional to project risk.