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Internal Rate of Return Calculator.

Estimate the periodic return that sets the net present value of a cash-flow series to zero.

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IRR: 8.90%

IRR

0.00%

FAQs

Why can IRR be undefined or have multiple answers?

A cash-flow series needs both inflows and outflows, and sign changes can produce no root or more than one mathematically valid root.

Use Cases

Evaluate Investment Projects

Compare the IRR of different projects to decide which offers the best return relative to its cash flow pattern.

Example: A project with an IRR of 15% vs. another with 10% may be preferred if both have similar risk.

Assess Business Ventures

Use IRR to determine if a new business venture or expansion meets your target return threshold.

Example: If your required return is 12%, a venture with IRR of 18% is attractive.

Frequently Asked Questions

What is the Internal Rate of Return (IRR)?
IRR is the discount rate that makes the net present value (NPV) of all cash flows from a project or investment equal to zero. It represents the expected annualized rate of return, assuming reinvestment at the same rate.
How is IRR calculated?
IRR is found by solving the equation NPV = 0, where NPV is the sum of each cash flow discounted at the IRR. Since it's not a simple formula, it's typically computed using iterative methods like Newton-Raphson or trial and error.
What does a higher IRR indicate?
A higher IRR suggests a more profitable investment, as it implies a higher potential return relative to the initial investment and interim cash flows. However, it should be compared to the required rate of return or cost of capital.

Tips & Common Mistakes

Tips

  • Ensure cash flows are entered in chronological order, with negative values for outflows (investments) and positive for inflows (returns).
  • IRR assumes reinvestment at the same rate, which may not be realistic; consider using Modified IRR (MIRR) for more accuracy.
  • For projects with unconventional cash flows (multiple sign changes), there can be multiple IRRs; interpret with caution.
  • Compare IRR to your cost of capital or required rate of return to make informed decisions.

Common Mistakes to Avoid

  • Forgetting to include the initial investment as a negative cash flow at time zero.
  • Using inconsistent time periods (e.g., mixing monthly and yearly cash flows) without adjusting the rate.
  • Assuming IRR is the same as the compound annual growth rate (CAGR) when cash flows are not reinvested at the IRR.

Last updated: August 13, 2026