IRR (Internal Rate of Return) Calculator

Project IRR: the rate that zeroes NPV

Project IRR is the discount rate that drives NPV = 0, in other words the rate where Σ CFₜ / (1 + IRR)ᵗ = 0. There's no closed-form answer, so you solve it by iterating (Newton-Raphson or bisection). The decision rule is simple enough: accept when IRR > MARR (the hurdle rate), reject otherwise. For flows of −1,000, +600, +600 you get an IRR of about 13.07%. Watch out for two classic traps. The first is multiple IRRs, which show up any time the cash flow changes sign more than once. The second is that IRR quietly assumes you reinvest the intermediate cash flows at the IRR itself, which rarely matches reality, and that's the gap MIRR was built to close.

Applications and context

You'll see it in project analysis, M&A, valuation, capex screening, real estate funds (FIIs), private equity and project finance. MBA and CFA programs lean on it as the standard capital-budgeting metric, usually taught right next to NPV and payback.

FAQ

How is IRR solved without a formula? You iterate. Newton-Raphson converges fast when there's a single sign change, while bisection holds up better when the flows get messy.

Why can there be multiple IRRs? Every sign change in the cash flow adds another possible root to the polynomial. So with two sign changes, you can end up with two different IRRs that both zero out NPV.

IRR vs NPV, which prevails? Lean on NPV when you're ranking projects or deciding to accept or reject. IRR is the better tool when you just need to express the return as a percentage.

What's a "good" IRR? One that sits comfortably above the hurdle rate or cost of capital, with the margin scaled to how risky the project is.