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Calculate the Internal Rate of Return for an investment based on a series of cash flows.
Select cash flow type and enter your investment details
Enter as negative value (e.g., -10000) for money you invest
Terminal value or remaining balance at the end of the investment period
Internal Rate of Return (IRR)
No IRR Found
IRR requires both positive and negative cash flows. Check your inputs.
The NPV Profile shows Net Present Value at different discount rates. IRR is where the line crosses zero.
| Period | Cash Flow | Cumulative |
|---|---|---|
| Period 0 | $-9,900.00 | $-9,900.00 |
| Period 1 | $100.00 | $-9,800.00 |
| Period 2 | $100.00 | $-9,700.00 |
| Period 3 | $100.00 | $-9,600.00 |
| Period 4 | $100.00 | $-9,500.00 |
| Period 5 | $100.00 | $-9,400.00 |
| Period 6 | $100.00 | $-9,300.00 |
| Period 7 | $100.00 | $-9,200.00 |
| Period 8 | $100.00 | $-9,100.00 |
| Period 9 | $100.00 | $-9,000.00 |
| Period 10 | $100.00 | $-8,900.00 |
| Period 11 | $100.00 | $-8,800.00 |
| Period 12 | $100.00 | $-8,700.00 |
| Period 13 | $100.00 | $-8,600.00 |
| Period 14 | $100.00 | $-8,500.00 |
| Period 15 | $100.00 | $-8,400.00 |
| Period 16 | $100.00 | $-8,300.00 |
| Period 17 | $100.00 | $-8,200.00 |
| Period 18 | $100.00 | $-8,100.00 |
| Period 19 | $100.00 | $-8,000.00 |
| ... (10 more) | ||
IRR Assessment: - Unable to determine
Profitability Index: < 1.0 indicates loss
Everything you need to know
Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of an investment equal to zero. It shows the average annual percentage return an investment generates, accounting for the timing and size of cash flows.
Our IRR calculator supports two scenarios:
Our calculator helps you:
IRR is the discount rate that makes NPV = 0:
NPV = CF₀ + CF₁/(1+r) + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ
Where:
IRR is found using iterative methods (Newton-Raphson method) because there's no direct algebraic formula.
When cash flows are constant at regular intervals, IRR calculation becomes more predictable:
NPV = CF₀ + CF₁/(1+r) + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ
Where all CF₁ through CFₙ are equal (fixed amounts at fixed intervals).
| Parameter | Options | Meaning |
|---|---|---|
| Initial Investment | Negative amount | Starting amount invested (outflow) |
| Duration | Years + Months | Total investment period (e.g., 2 years 6 months) |
| Payment Amount | Any dollar amount | Consistent payment per period |
| Payment Type | Deposit / Withdraw | Direction of cash flow (in or out) |
| Frequency | Monthly / Quarterly / Annually | How often payments occur |
| Timing | Beginning / End of Period | When payment is made (affects discount timing) |
| Ending Balance | Any dollar amount | Terminal value returned at end of period (salvage/residual) |
| Option | Meaning | When to Use |
|---|---|---|
| Deposit | Cash flowing into the investment | Annuity investments, savings plans, insurance funds |
| Withdraw | Cash flowing out of the investment | Loan repayments, withdrawal from fund |
Different frequencies create different numbers of periods:
| Frequency | Example: 2 Years 6 Months |
|---|---|
| Monthly | 30 monthly payments |
| Quarterly | 10 quarterly payments |
| Annually | 2-3 annual payments |
More frequent payments → More periods → Potentially different IRR
Beginning of Period: Payment made at start (immediate discount benefit) End of Period: Payment made at end (standard accounting)
This affects the discount factor calculation and final IRR:
The Ending Balance is an amount you receive back at the end of the investment period. This represents:
How it affects IRR:
Example: Equipment purchase for $5,000 with monthly rental income of $200 for 2 years, then sold for $2,000 at end:
Scenario: Open an investment account with -$10,000, deposit $100 monthly for 2 years 6 months, receive $15,000 back
Parameters:
This creates a cash flow stream:
The calculator finds the discount rate where NPV = 0, giving you the investment's IRR.
Scenario: -$100,000 initial investment, $30,000 annual cash flow for 5 years
Find the rate where NPV = 0:
At 5%:
At 10%:
At 15%:
IRR ≈ 15.2% (where NPV = 0)
| Advantage | Explanation |
|---|---|
| Simple calculation | All future flows are identical |
| Predictable pattern | Easy to understand and verify |
| Stable projects | Represents consistent revenue streams |
| Quick comparison | Compare multiple similar projects easily |
When cash flows vary by year, the NPV calculation becomes more complex:
NPV = CF₀ + CF₁/(1+r) + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ
Where CF₁, CF₂, CF₃, etc. are all different values.
Scenario: -$50,000 initial investment with varying cash flows
| Year | Cash Flow |
|---|---|
| 0 | -$50,000 |
| 1 | -$10,000 |
| 2 | $30,000 |
| 3 | $50,000 |
Find the rate where NPV = 0:
At 10%:
At 15%:
IRR ≈ 12.9% (between 10-15%, where NPV = 0)
| Advantage | Explanation |
|---|---|
| Realistic | Matches actual project cash flows |
| Flexibility | Handles variable revenue streams |
| Detailed analysis | Shows impact of timing of cash flows |
| Project-specific | Captures unique cash flow patterns |
| Aspect | Fixed Cash Flow | Irregular Cash Flow |
|---|---|---|
| Annual Amount | Constant | Varies each year |
| Calculation | More straightforward | Requires iteration |
| Real-world Use | Leases, annuities, bonds | Most business projects |
| Predictability | Highly predictable | May be uncertain |
| Time Value Impact | Uniform discount effect | Timing matters greatly |
Two projects, same total cash inflows ($120,000), same initial investment (-$100,000)
Project A (Fixed): -$100,000 → $40,000 → $40,000 → $40,000
Project B (Irregular): -$100,000 → $20,000 → $40,000 → $60,000
Project C (Irregular): -$100,000 → $60,000 → $40,000 → $20,000
Same total return, different timing, different IRR!
| Advantage | Why It Matters |
|---|---|
| Simple percentage | Easy to understand and compare |
| Single number | Summarizes entire project return |
| Time-aware | Accounts for when cash flows occur |
| Decision rule | Compare against cost of capital |
| Limitation | Impact | Solution |
|---|---|---|
| May not exist | Some cash flows have no IRR | Check for sign changes |
| Multiple IRRs possible | Non-conventional patterns | Use NPV instead |
| Ignores scale | $100k and $1M same treatment | Adjust targets by project size |
| Reinvestment assumption | Assumes reinvest at IRR rate | Use Modified IRR (MIRR) |
| Biased toward short projects | May favor quick returns | Use NPV or MIRR |
| Metric | Formula | Measures | Best For |
|---|---|---|---|
| IRR | Rate where NPV = 0 | Percentage return | Comparing investment returns |
| NPV | Sum of discounted cash flows | Dollar value created | Final yes/no decisions |
| Payback Period | Time to recover investment | Liquidity, risk | Quick cash flow assessment |
| Profitability Index | PV of inflows / Initial investment | Return per dollar | Capital rationing |
| MIRR | IRR with realistic reinvestment rate | Adjusted return | More realistic comparison |
Example: If your cost of capital is 12% and project IRR is 15%, accept the project.
Example: With $500,000 budget and 12% hurdle rate:
The calculator uses the Newton-Raphson iterative method:
This method converges quickly for most real-world cash flows.
Cause: Cash flows don't have both positive and negative values
Solution: Ensure you have an initial investment (negative) and at least one positive inflow
Example of invalid cash flow: $100,000 → $150,000 → $200,000 (all positive, no investment)
Cause: Cash flows change signs multiple times (unusual)
Solution: Use NPV method instead for reliable decision-making
Example: -$100,000 → $200,000 → -$150,000 (sign changes twice)
Cause: Unusual cash flow patterns or project characteristics
Solution: Review cash flow assumptions; use NPV and profitability index for complete picture
Modified IRR (MIRR) is more realistic because it assumes:
Use MIRR when:
Example:
Disclaimer: This IRR calculator provides estimates for educational and planning purposes. Actual results depend on cash flow accuracy, market conditions, and assumptions. Consult financial advisors for major investment decisions. Past performance does not guarantee future results.
Depends on industry and risk level:
IRR automatically accounts for timing, making it excellent for comparing different-length projects. Project with higher IRR is better return per year.
Use both for complete analysis:
Yes. Negative IRR means the project loses value (returns below 0%).
Profitability Index = PV of Inflows / Initial Investment
Add it to the final year's cash flow:
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This calculator is provided for informational and educational purposes only. Results are calculated based on standard formulas and your inputs. While we strive for accuracy, we do not guarantee that results are error-free or suitable for all applications. Always verify important calculations independently before making decisions based on the results. Users are responsible for the accuracy of their inputs and should consult appropriate professionals for critical applications. We are not liable for any decisions made based on these calculations.