About this IRR Calculator
IRR is the gold standard for comparing investments with uneven cash flows (like real estate or business projects). It calculates the annualized effective compounded return rate.
How to use this calculator
- Enter the Initial Investment as a negative number (money leaving your pocket).
- Enter Cash Flows for each subsequent year separated by commas.
- The tool calculates the % return rate.
Accuracy and testing
Review formula sources, default test cases, assumptions, unit handling, rounding rules, and changelog for this calculator.
How this calculator works
The calculator uses an iterative numerical method (Newton-Raphson) to find the discount rate (r) where:
NPV = Σ [ CashFlow / (1+r)^t ] = 0.
Inputs explained
Initial Investment
The upfront cost. Must be negative (e.g. -10000).
Cash Flows
A list of net income amounts for each period (Year 1, Year 2, etc). Can be positive or negative.
Understanding your results
If the IRR is higher than your Cost of Capital (or required rate of return), the investment is generally considered good. If IRR is lower, the project may lose value.
Example scenarios
Simple Investment
Invest -$100, receive $110 in Year 1. IRR = 10%.
Multi-Year Project
Invest -$10,000. Returns: $3,000, $4,000, $5,000, $6,000. IRR is approx 24.8%.
Key Features
- Handles unlimited cash flow periods
- Calculates NPV Check
- Newton-Raphson Algorithm
Things to Keep in Mind
IRR may fail or return multiple values if cash flows alternate signs multiple times (e.g. -, +, -, +).
Tips & Best Practices
- IRR assumes you reinvest profits at the same IRR rate. If that's unrealistic, consider MIRR (Modified IRR).
- Always compare IRR against your 'Hurdle Rate' (the minimum return you accept).
Glossary of Terms
- NPV
- Net Present Value. The value of all future cash flows discounted back to today.
- Discount Rate
- The interest rate used to determine the present value of future cash flows.