IRR Calculator (Internal Rate of Return)
Find the IRR and NPV of an investment from its cash flows.
What IRR means
The internal rate of return is the yearly return that makes the net present value of all cash flows equal zero. It lets you compare projects of different sizes: the higher the IRR compared with your required return, the more attractive the project.
Example
Cash flows of −1,000, then 300, 400, 500 and 200, have an IRR of about 15.32%. At an 8% discount rate the net present value is about 164.64, and the investment pays back after about 2.6 periods.
Limits to keep in mind
- If cash flows change sign more than once, there can be several IRRs, or none.
- IRR assumes you can reinvest at the same rate, which may be too optimistic.
- Use NPV at your own required return alongside IRR, and treat both as estimates.
Frequently asked questions
What is a good IRR?
One that is higher than your cost of capital or the return you could get elsewhere with similar risk.
What if the flows are monthly?
The IRR is then per month. Multiply carefully or use the yearly equivalent: (1 + monthly IRR)^12 − 1.
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