IRR is the return an investment earns on the money tied up in it. A project is worth doing if its IRR exceeds your cost of capital. With unusual cash flows (signs changing more than once) IRR can be misleading – check the NPV too.
How to use the IRR Calculator – Internal Rate of Return
- Initial investment
- Cash flows for year 1, 2, 3 …
- Required rate of return (for NPV)
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the initial investment and the cash flow for each year (negative for extra outlays), and your required rate of return.
Tips
- Use the nominal annual rate and pick the compounding frequency your bank or broker states.
- Small differences in return or fees compound into large differences over decades.
- Run the calculation with a cautious, a central and an optimistic return to see the range of outcomes.
- Past returns do not guarantee future returns – nothing here is investment advice.
Common mistakes to avoid
- Comparing an APR with an APY or effective rate.
- Ignoring inflation, taxes and fees when judging a real return.
- Entering a percentage as a decimal (5 instead of 0.05 is correct here).
Inputs explained
| Field | What to enter |
|---|---|
| Initial investment | Amount in your currency |
| Cash flows for year 1, 2, 3 … | A list of numbers separated by commas, spaces or new lines |
| Required rate of return (for NPV) | In % |
What each result means
- Internal rate of return (IRR) = [Internal rate of return (IRR)](0 – [Initial investment], [Cash flows for year 1, 2, 3 …])×100
- NPV at the required rate = [NPV at the required rate]([Required rate of return (for NPV)]÷100, [Cash flows for year 1, 2, 3 …]) – [Initial investment]
- Total net cash flow = sum([Cash flows for year 1, 2, 3 …]) – [Initial investment]
- Years of cash flows = count([Cash flows for year 1, 2, 3 …])
Example values
How the main result changes when Initial investment changes and everything else stays at the example values above:
| Initial investment | Internal rate of return (IRR) (%) |
|---|---|
| 6,000 | 48.241 |
| 9,000 | 23.475 |
| 12,000 | 9.391 |
| 15,000 | -2.987e-13 |
| 18,000 | -6.847 |
| 24,000 | -16.386 |
Formula
Find r such that −investment + Σ CFₜ ÷ (1 + r)^t = 0NPV at your required rate = Σ CFₜ ÷ (1 + required)^t − investmentWorked example
Inputs — Initial investment: $12,000; Cash flows for year 1, 2, 3 …: 3000, 4000, 5000, 3000; Required rate of return (for NPV): 8 %.
Results — Internal rate of return (IRR) = 9.391 %; NPV at the required rate = $381.38; Total net cash flow = $3,000.00; Years of cash flows = 4; Decision = IRR beats the required return.
Frequently asked questions
What is a good IRR?
One above your cost of capital or hurdle rate; many businesses look for 15%+.
What is the difference between IRR and NPV?
NPV is a dollar amount; IRR is a percentage return.
Can a project have more than one IRR?
Yes, if cash flows change sign more than once.
What formula does the IRR Calculator – Internal Rate of Return use?
Find r such that −investment + Σ CFₜ ÷ (1 + r)^t = 0.