Internal Rate of Return (IRR) Calculator
Find the internal rate of return for a project or investment. Enter the cash flow for each period and the calculator solves for the discount rate that makes the net present value exactly zero.
How to calculate internal rate of return
- Enter the initial outlay at time zero as a negative number.
- Enter the cash flow for each later period.
- Read the IRR. Compare it with your required return to judge the investment.
Examples
Cash flows -1000, 300, 400, 500, 600
cash flows -1000, 300, 400, 500, 600
IRR 24.89%
Frequently asked questions
What is the internal rate of return?
The internal rate of return is the discount rate at which the net present value of a series of cash flows equals zero. It expresses an investment's expected annual return as a single percentage.
How is IRR calculated?
IRR has no closed form, so it is found by searching for the rate that makes net present value zero. This calculator uses bisection, narrowing the rate until the net present value is within a tiny tolerance of zero.
Why do I need a negative cash flow?
IRR needs at least one sign change in the cash flows, typically an initial outlay followed by inflows. Without a sign change there is no rate that sets net present value to zero, so the calculator reports an error.
How do I use IRR to make a decision?
Compare the IRR with your required return or cost of capital. If the IRR is higher, the investment is expected to beat your hurdle rate; if it is lower, the investment falls short at that benchmark.
What are the limits of IRR?
IRR assumes interim cash flows are reinvested at the IRR itself, and a series with several sign changes can have more than one IRR. For such cases, compare results with net present value at your chosen rate.
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