IRR Calculator
IRR is the discount rate that makes NPV = 0. Decision rule: accept a project if IRR ≥ hurdle rate (WACC). Example: $100,000 investment with cash flows of $30K–$40K over 5 years → IRR ≈ 19.8%. NPV at 12% hurdle rate = +$31,120 → accept. IRR is solved iteratively (bisection). Profitability Index = Total PV / Initial Investment; PI > 1 = accept. Multiple sign changes in cash flows can produce multiple IRRs.
Calculate the Internal Rate of Return (IRR) for any investment or project. Enter initial investment and annual cash flows to find IRR, NPV at your hurdle rate, profitability index, and total ROI. Accept if IRR ≥ hurdle rate (WACC). Includes year-by-year discounted cash flow schedule.
Required rate of return (WACC, cost of capital)
Negative values allowed (e.g., additional capex years)
Year-by-Year Cash Flow Schedule
| Year | Cash Flow | PV at Hurdle Rate |
|---|---|---|
| Year 0 | -$100,000 | -$100,000 |
| Year 1 | $30,000 | $26,786 |
| Year 2 | $35,000 | $27,902 |
| Year 3 | $40,000 | $28,471 |
| Year 4 | $38,000 | $24,150 |
| Year 5 | $32,000 | $18,158 |
| Total | $175,000 | $25,466 |
How to Use
- 1
Enter the initial investment
Type the upfront cost of the project (Year 0 outflow). This is a positive number representing the amount you invest today.
- 2
Set your hurdle rate
Enter your WACC or minimum required return (typically 8–15%). IRR must exceed this rate for the project to add value.
- 3
Enter annual cash flows
Type each year's expected cash inflow on a new line, starting with Year 1. Negative values are allowed for additional cost years.
- 4
Read the IRR decision
Green "ACCEPT" means IRR ≥ hurdle rate — the project clears your minimum return threshold. Red "REJECT" means IRR falls short. Check NPV at hurdle rate for the dollar value of the decision.
- 5
Review the DCF schedule
The table shows each year's cash flow and its present value at your hurdle rate. Comparing cash flow vs. discounted cash flow shows how much the time value of money reduces each year's contribution.
Frequently Asked Questions
- What is Internal Rate of Return (IRR)?
- IRR is the discount rate that makes the NPV of a project equal to zero — in other words, the annualized return the investment earns on every dollar invested. Decision rule: accept a project if IRR ≥ hurdle rate (WACC or required return). Example: $100,000 investment with cash flows of $30K–$40K over 5 years → IRR ≈ 19.8%. If the hurdle rate is 12%, IRR > hurdle rate → accept. The higher the IRR relative to the hurdle rate, the more value the project creates.
- How is IRR calculated?
- IRR cannot be solved analytically — it requires iteration. The most common method is bisection (or Newton-Raphson): start with two guesses (one positive rate, one negative), evaluate NPV at each, and bisect the interval until NPV ≈ 0. Excel's IRR() function uses the same principle. Example: $50,000 investment, $18K/year for 4 years. At 10% discount rate, NPV = +$7,075. At 20%, NPV = −$1,947. Bisect: at 18.45%, NPV ≈ 0 → IRR ≈ 18.45%. Most real projects converge in 50–200 iterations.
- What is the difference between IRR and NPV?
- NPV is a dollar amount — it tells you how much value the project adds at your specific discount rate. IRR is a rate — it tells you the project's own return, independent of your hurdle rate. NPV is generally more reliable for ranking mutually exclusive projects: a project with a lower IRR but higher NPV adds more value. IRR can give misleading rankings when project sizes or timing differ significantly. Use both: IRR confirms the project clears your hurdle rate; NPV tells you the dollar magnitude of the benefit.
- What does it mean when IRR cannot be found?
- IRR is undefined when the cash flow stream does not contain at least one sign change (from negative to positive). If all cash flows are positive or all are negative, there is no rate that makes NPV = 0. Additionally, if the cash flows have multiple sign changes (e.g., positive then negative then positive — common in oil wells or phased projects), there may be multiple IRRs. In these cases, use NPV or MIRR (Modified IRR), which assumes a specified reinvestment rate for positive cash flows.
- What is a good IRR for a project or investment?
- A "good" IRR depends on the cost of capital and risk profile. General benchmarks: private equity typically targets 20–30% IRR for buyout funds; venture capital targets 25–35%+; real estate developments often target 15–25%; corporate capital projects typically require 12–20% (depending on WACC). The key comparison is always IRR vs. hurdle rate. An IRR of 15% is excellent for a low-risk infrastructure project (WACC 7%) but poor for a high-risk startup investment (expected return 30%). The spread (IRR minus hurdle rate) measures value creation.
- What is the difference between IRR and ROI?
- ROI (Return on Investment) = (Total Gain − Investment) / Investment × 100 — a simple percentage with no time dimension. IRR is an annualized, time-weighted rate that accounts for the timing of cash flows. Example: $10,000 investment returning $20,000 in 5 years. ROI = 100%. IRR ≈ 14.9%/year. A $10,000 investment returning $20,000 in 2 years has the same ROI (100%) but IRR ≈ 41.4% — much higher because you received the return sooner. IRR is the better metric for comparing investments of different durations.