📊 IRR Calculator, Internal Rate of Return
By Shihab Mia · Updated 2026-08-03
This calculator is an estimate for education and planning only. It assumes the cash flows you enter arrive at the end of each period and does not account for tax, inflation or reinvestment risk. It is not investment advice, confirm the figures and speak to a qualified financial adviser before committing capital.
Enter the amount invested today, then one cash flow per period after that. IRR is the discount rate that makes the net present value of all these cash flows equal zero.
The internal rate of return (IRR) is the annual growth rate at which an investment breaks even in present-value terms, the discount rate that makes the net present value (NPV) of every cash flow add up to exactly zero. Enter an initial investment and the cash flows you expect in each period afterward, and this IRR calculator finds that rate for you, along with the NPV at any discount rate you want to compare it against.
What is the IRR Calculator?
Every investment is really a series of cash flows spread over time: money goes out today, and money is expected to come back in over the following months or years. The internal rate of return answers a simple question about that series: what constant annual rate of growth would make the present value of everything you get back exactly equal to what you put in? When you find that rate, the NPV of the whole project is zero by definition, which is why IRR and NPV are two views of the same underlying cash-flow math.
Because there is no algebraic formula that solves for IRR directly (the equation involves the unknown rate raised to several different powers at once), every real calculator finds it by trial and error. This tool uses the bisection method: it tests a very low rate and a very high rate, checks that the NPV flips sign somewhere between them, then repeatedly narrows the gap by testing the midpoint and keeping whichever half still brackets the sign change. After around 100 narrowing steps the interval is far smaller than a rounding error, and the midpoint is reported as the IRR. It is slower than some numerical shortcuts but it is dependable, it will not diverge or return a wildly wrong answer the way faster root-finding methods occasionally can on unusual cash-flow patterns.
IRR is most useful as a single number for comparing opportunities of similar size and risk. A project with an 18% IRR generally looks better than one with a 9% IRR, all else equal, because it implies a higher effective annual return on the capital tied up in it. But IRR has real limitations. It assumes any cash returned partway through the investment gets reinvested at the same IRR, which is often unrealistic, especially for high IRR projects. It also cannot rank two projects of very different sizes on its own, a small investment with a spectacular IRR may still create less total value than a larger one with a modest IRR. And if the cash flows switch sign more than once, such as an outflow, then an inflow, then another outflow, the underlying equation can have more than one mathematically valid root, so a single reported IRR should be read with that caveat in mind.
For exactly that reason, most finance textbooks recommend using IRR alongside NPV rather than instead of it. NPV tells you the actual dollar value an investment is expected to create at your required rate of return, while IRR tells you the breakeven rate itself. This calculator gives you both: the IRR, plus the NPV at a discount rate you choose, so you can see whether your required return sits comfortably below the IRR or uncomfortably close to it.
When to use it
- Comparing two or more investment options on a like-for-like annual return basis.
- Deciding whether a business project clears your minimum acceptable rate of return (hurdle rate).
- Evaluating a real estate deal where you put money in upfront and receive rent or resale proceeds later.
- Checking a startup or private equity cash-flow projection to see the implied annualized return.
- Sanity-checking a loan, bond or structured payout by treating it as a stream of cash flows.
- Testing how sensitive a deal is by seeing how the IRR moves as the projected cash flows change.
How to use the IRR Calculator
- Enter the initial investment, the amount you put in today, as a positive number.
- Add one row per future period and enter the cash flow for that period. Use a positive number for money received and a negative number for money paid out.
- Set the discount rate you want to check the NPV against (your required return or cost of capital); it defaults to 10%.
- Read off the IRR and the NPV at your chosen rate. If NPV is positive at your required rate, the IRR is above it and the deal clears your hurdle.
Formula & method
Worked examples
You invest $1,000 today and expect to get back $200 in year 1, $300 in year 2, $400 in year 3, and $500 in year 4. What is the IRR, and does it clear a 10% required return?
- Set up the equation: -1,000 + 200/(1+r) + 300/(1+r)^2 + 400/(1+r)^3 + 500/(1+r)^4 = 0.
- Test the low bound, r = -99%, NPV is a large positive number, and the high bound, r = 1000%, NPV is a large negative number, so the root sits between them.
- Bisection narrows the range, checking rates like 10% (NPV = +$71.79), 13% (NPV = -$4.13) and 12.8% (NPV = +$0.62), closing in on the crossing point.
- After enough narrowing steps the rate settles at approximately r = 12.83%, where NPV is essentially zero (about -$0.10, well within rounding).
- Because 12.83% is above the 10% required return, the NPV at 10% is positive ($71.79) and the project clears the hurdle.
Result: IRR is approximately 12.83%, and NPV at a 10% discount rate is about $71.79, so the investment is worth taking at a 10% required return.
You invest $5,000 today and expect a single payment of $6,000 back in exactly one year. What is the IRR?
- Set up the equation: -5,000 + 6,000/(1+r) = 0.
- Rearrange: 6,000/(1+r) = 5,000, so (1+r) = 6,000/5,000 = 1.20.
- Subtract 1: r = 0.20, or 20%.
- Check: -5,000 + 6,000/1.20 = -5,000 + 5,000 = 0, confirmed.
Result: IRR = 20.00% exactly, since a single-period cash flow reduces to simple percentage growth.
How IRR typically compares to NPV at a fixed required return
| Relationship | What it means | Typical decision |
|---|---|---|
| IRR > required return | NPV at that required return is positive | Accept, the investment clears the hurdle |
| IRR = required return | NPV at that required return is zero | Break-even, no value added or lost |
| IRR < required return | NPV at that required return is negative | Reject, the investment falls short |
| No real IRR in range | Cash flows never cross zero NPV between -99% and 1000% | Rely on NPV directly instead |
Example IRR from simple one-payout deals (invest today, receive once)
| Investment today | Payout after 1 year | IRR |
|---|---|---|
| $1,000 | $1,100 | 10.00% |
| $1,000 | $1,200 | 20.00% |
| $5,000 | $6,000 | 20.00% |
| $10,000 | $11,500 | 15.00% |
Common mistakes to avoid
- Forgetting the initial investment is a negative cash flow. The money you put in today sits at period zero and reduces the total, it is not one of the period cash flows and it is never discounted. Leaving it out or discounting it produces a meaningless result.
- Assuming a higher IRR always means a better deal. IRR ignores the size of the investment. A tiny deal with a 40% IRR may create far less total value than a large deal with a 15% IRR. Compare NPV in dollar terms, not just the IRR percentage, when the investments are different sizes.
- Trusting a single IRR when cash flows change sign more than once. If the cash flows go negative, then positive, then negative again (common with projects that need a mid-life reinvestment), the underlying equation can have more than one valid root. A calculator that returns just one answer may be hiding others, treat the result with caution in that case.
- Ignoring the reinvestment assumption. IRR implicitly assumes every cash flow you receive along the way gets reinvested at the same IRR until the end of the project. For a high IRR that assumption is often unrealistic, which is one reason many analysts prefer NPV or a modified IRR that uses a separate, more realistic reinvestment rate.
Glossary
- Internal Rate of Return (IRR)
- The discount rate at which the net present value of a series of cash flows equals zero.
- Net Present Value (NPV)
- The sum of every cash flow discounted back to today at a chosen rate, minus the initial investment.
- Discount rate
- The annual rate used to convert a future cash flow into its present-day value.
- Hurdle rate
- The minimum required rate of return an investment must clear before it is considered acceptable.
- Bisection method
- A numerical technique that finds a root of an equation by repeatedly halving a range known to contain it.
- Cash flow sign convention
- The rule that money paid out is entered as negative and money received is entered as positive.
Frequently asked questions
What is a good IRR?
There is no universal good IRR, it depends entirely on what you compare it to. A common approach is to compare the IRR against your required rate of return or hurdle rate, if the IRR is comfortably above that rate, the investment adds value. Riskier investments generally need a higher IRR to be worthwhile than safer ones.
How is IRR different from NPV?
NPV gives you a dollar amount, the value created at a fixed discount rate you choose. IRR gives you a percentage, the discount rate at which that dollar value would be exactly zero. They are closely related and often lead to the same accept or reject decision, but NPV is usually preferred when comparing projects of different sizes because it measures actual value in dollars.
Can IRR be negative?
Yes. A negative IRR means the investment is expected to lose money even before accounting for any required return, the cash you get back is worth less, in present-value terms, than what you put in. This calculator searches down to -99% so it can find negative IRRs as well as positive ones.
Why does the calculator say no real IRR was found?
This happens when the net present value never crosses zero across the search range of -99% to 1000%. It usually means every cash flow points the same direction, for example all inflows with no negative investment, or all outflows with no positive returns, so there is no breakeven rate to find.
What method does this calculator use to find IRR?
It uses the bisection method, a reliable numerical technique. It tests a very low and a very high discount rate, confirms the net present value has opposite signs at each end, then repeatedly checks the midpoint and narrows the range toward the crossing point until it is accurate to well under a hundredth of a percent.
Does this IRR calculator handle monthly or quarterly cash flows?
Yes, as long as you are consistent. Each row represents one period, whatever length you choose, monthly, quarterly or annual, and the IRR returned is the rate per that same period. To compare a monthly IRR with an annual required return, convert it by compounding: annual rate = (1 + monthly rate)^12 - 1.