IRR Calculator (Internal Rate of Return)
Calculate the internal rate of return — the discount rate at which a project's net present value equals zero — from an initial investment and a series of cash flows.
Formula & Reference
| Variable | Symbol | Formula | Units |
|---|---|---|---|
| IRR Calculator (Internal Rate of Return) | — | IRR = rate r where Σ CFₜ / (1 + r)ᵗ = initial investment | percent |
Step-by-Step Examples
Invest 100,000, returns of 30,000 / 35,000 / 40,000 / 45,000, hurdle rate 12%.
- Solve for r where NPV = 0
- Trial: at 15% NPV is slightly positive, at 18% slightly negative
- IRR ≈ 17.09%
- Above the 12% hurdle
Invest 200,000, returns of 60,000 annually for four years, hurdle 12%.
- Total undiscounted return = 240,000
- IRR ≈ 7.7%
- Below the 12% hurdle — consistent with the negative NPV at that rate
Invest 50,000, returns of 120,000 then −75,000 (cleanup cost in period 2).
- Cash flows change sign more than once
- Two mathematically valid IRRs can exist for this pattern
- The single reported figure may be misleading
- NPV is the reliable measure here
Real-World Applications
Common Mistakes to Avoid
IRR ignores scale. A small project with 40% IRR may create far less value than a large one at 18%. NPV ranks correctly; IRR does not.
When cash flows change sign more than once, several mathematically valid IRRs can exist. The calculator reports one, which may not be the meaningful one.
Standard IRR implicitly assumes reinvestment at the IRR itself, which is often unrealistic for high-IRR projects. Modified IRR addresses this.