IRR Calculator
What is Internal Rate of Return (IRR)?
The Internal Rate of Return (IRR) is a key financial metric used to estimate the profitability of potential investments. It is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. In simpler terms, IRR tells you the annualized expected return of an investment.
IRR is widely used in capital budgeting, real estate, venture capital, and corporate finance to compare the attractiveness of different projects. The higher the IRR, the more desirable the investment — provided it exceeds the cost of capital.
IRR Formula
0 = CF₀ + CF₁/(1+IRR)¹ + CF₂/(1+IRR)² + … + CFₙ/(1+IRR)ⁿCF₀ is the initial investment (usually negative) and CF₁…CFₙ are the net cash flows for each period.How to Use This Calculator
- Initial Investment: Enter the amount you invest today as a negative number (e.g., -10000).
- Cash Flows: Enter the expected net cash inflows for each future year. You can add as many years as needed.
- Click Calculate IRR – the tool will instantly compute the annual IRR.
- Use the Reset button to clear all inputs and start over.
All cash flows are assumed to occur at the end of each period (annual basis).
Example Calculation
Try it yourself in the calculator above!
Limitations of IRR
- IRR assumes that all intermediate cash flows are reinvested at the same rate, which may not be realistic.
- If the cash flows change signs more than once (e.g., negative-positive-negative), there can be multiple IRRs. This calculator returns one plausible IRR using the Newton‑Raphson method.
- IRR should be used together with other metrics like NPV for a complete investment analysis.
💡 This tool is for educational and quick‑reference purposes. Always verify critical financial decisions with a professional.
