IRR Calculator
Calculate Internal Rate of Return and Net Present Value from cash flows.
Frequently Asked Questions
What is IRR?
IRR (Internal Rate of Return) is the discount rate that makes the net present value of all cash flows equal to zero.
How to interpret IRR?
If IRR is greater than your required rate of return (hurdle rate), the investment is worth pursuing.
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What is this tool?
IRR (Internal Rate of Return) is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. It is a key metric for evaluating investment profitability, expressed as a percentage. A positive IRR exceeding the required rate of return indicates a potentially profitable investment.
How to use
- 1
Enter initial investment
Type the initial cash outflow (negative value) as the first cash flow.
- 2
Add subsequent cash flows
Enter each periodic cash inflow or outflow for the investment duration.
- 3
Calculate IRR
The tool computes the rate where NPV equals zero using numerical approximation.
- 4
Evaluate results
Compare IRR against your required rate of return to decide on the investment.
Frequently Asked Questions
What IRR should I target?
Target IRR depends on risk and opportunity cost. Rule of thumb: 8-10% for low-risk bonds, 12-15% for stocks, 15-25% for private equity, and 20%+ for venture capital. Always compare against your cost of capital.
What are the limitations of IRR?
IRR assumes cash flows are reinvested at the IRR rate (unrealistic), can produce multiple values for non-conventional cash flows, and does not account for investment scale. A small project with 50% IRR may create less value than a large project with 20% IRR.
How does IRR differ from ROI?
ROI (Return on Investment) is a simple percentage: (Gain - Cost) / Cost, ignoring timing. IRR considers the time value of money, making it more accurate for multi-year investments. ROI is backward-looking; IRR is forward-looking.