IRR Calculator
Estimate the internal rate of return for a series of cash flows, with the initial outlay first. Includes a worked 4-period example and limits of IRR.
Results · USD
IRR
Per period matching your cash-flow spacing
- Periods
- 4
- Initial outlay
- -$10,000.00
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Educational estimates · not financial advice · free, no signup
How this was calculated
IRR is the rate r such that Σ CF_t / (1+r)^t = 0. Solved numerically (Newton). Annual if cash flows are yearly.
Want more detail? Full formula notes & FAQs ↓
Detailed guide
What it is, how to use it, how to read the numbers, common mistakes, a worked example, formulas, and FAQs.
What this calculator is
The internal rate of return is the single discount rate at which an investment's cash inflows, discounted to today, exactly offset the money you put in. It lets you compare projects of different size and timing on one scale: a project returning 17% a year is better, on this measure, than one returning 12%. You enter cash flows separated by commas, starting with the initial outlay as a negative number. The tool solves for the rate numerically and reports the number of periods and the initial outlay. IRR has known limits: it can have several answers when cash flows change sign more than once, and it assumes reinvestment at the same rate, so it should be paired with net present value.
When to use / who it helps
- You are evaluating a project or purchase with an upfront cost followed by cash inflows.
- You want to compare two investments with different timing of cash flows.
- You are checking the return on rental property, equipment or a business project.
- You want a break-even discount rate for a decision.
- You need to verify a spreadsheet IRR function result.
How to use
Steps
- List the cash flows in order, separated by commas, starting with the negative initial investment.
- Use the same time spacing for each flow, such as yearly.
- Leave the initial guess at 10% unless the solver fails.
- Read the IRR, which is per period.
- Check the number of periods and the initial outlay line.
- Compare IRR with your required rate of return.
How to interpret results
- If IRR exceeds your hurdle rate, the project clears it on this measure.
- The rate is per period; annual only if the flows are yearly.
- Multiple sign changes can give several or no valid IRRs.
- IRR ignores project scale, so a high IRR on a tiny project may add little value.
- IRR assumes interim cash flows are reinvested at the same rate.
Common mistakes & gotchas
- Forgetting to enter the initial outlay as a negative number.
- Mixing yearly and monthly cash flows.
- Treating IRR as a guaranteed return.
- Using IRR alone to choose between projects of very different size.
- Ignoring taxes, fees and uncertainty in the cash flows.
Worked example
Worked example — invest $10,000 and receive $3,000, $3,500, $4,000, $4,500
- Cash flows: −10,000, 3,000, 3,500, 4,000, 4,500 over years 0 to 4.
- At a 10% discount rate the net present value is about +$1,699, so the IRR is above 10%.
- At 17% the net present value is about +$20, almost zero, so the IRR is just above 17%.
- Solving numerically gives an IRR of about 17.09% per year.
Result: The project returns about 17.09% a year over four years.
To load the form's own demo values, tap Try example above the Calculate button.
How to calculate / formula
IRR is the rate r such that Σ CF_t / (1+r)^t = 0. Solved numerically (Newton). Annual if cash flows are yearly.
Frequently asked questions
What is IRR?
The discount rate at which the present value of the inflows equals the initial investment, so the net present value is zero.
What is a good IRR?
It depends on risk and alternatives. Compare it with the return you require or the cost of capital.
How is IRR different from ROI?
ROI is total gain over cost without regard to timing. IRR accounts for when the cash arrives.
Why can IRR give multiple answers?
When cash flows change sign more than once, the equation can have several solutions.
Should I use IRR or NPV?
Use both. NPV shows the value created at a stated rate; IRR shows the break-even rate.
Can I enter monthly cash flows?
Yes, but the IRR is then per month. Annualise it carefully, for example by compounding twelve times.