IRR Calculator
A professional-grade tool for evaluating capital investment profitability.
Subsequent Annual Cash Flows
IRR Calculator
IRR (Internal Rate of Return) is the most powerful single number for evaluating an investment with multiple cash flows — like a business acquisition, real estate deal, or project. This calculator finds that rate instantly.
What Is IRR?
The Internal Rate of Return is the discount rate that makes the Net Present Value (NPV) of all cash flows from an investment equal to zero. In other words, it's the annualized return you'll earn on every dollar invested, accounting for the timing of all cash flows in and out.
How to Use This Calculator
- Enter the initial investment as a negative number (cash out).
- Enter each subsequent period's cash flow (positive = inflows, negative = additional outflows).
- Click Calculate to find the IRR percentage.
- Compare IRR to your required rate of return (hurdle rate). If IRR > hurdle rate, the investment is worthwhile.
IRR Decision Rule
- IRR > Hurdle Rate: Accept the investment
- IRR < Hurdle Rate: Reject the investment
- Comparing two projects: The higher IRR project is generally preferred (with caveats)
Example Calculation
Year 0: −$50,000 (investment) | Year 1: $15,000 | Year 2: $18,000 | Year 3: $20,000 | Year 4: $22,000
- IRR ≈ 18.7%
- If your hurdle rate is 12%: IRR 18.7% > 12% → Accept
IRR vs. NPV
- IRR: A percentage return — easy to compare across projects of different sizes.
- NPV: An absolute dollar value — tells you exactly how much value a project adds. More reliable for comparing mutually exclusive projects of different scales.
- When IRR and NPV conflict, NPV is generally the more reliable metric.
Common Mistakes to Avoid
- Using IRR alone when projects differ in scale — A 30% IRR on a $10,000 project may be less valuable than 20% IRR on a $500,000 project.
- Assuming a single IRR — Projects with alternating sign cash flows can have multiple IRRs or no IRR. MIRR (Modified IRR) is more reliable in these cases.
- Ignoring cash flow timing — IRR is only as good as your cash flow projections. Garbage in, garbage out.
Frequently Asked Questions
What is a good IRR for real estate?
For real estate investments, a 12%–20% IRR is commonly targeted. Below 10% may not justify the risk and illiquidity. Above 25% is exceptional (often accompanied by higher risk).
How is IRR different from ROI?
ROI measures total return over the entire period without regard to timing. IRR accounts for when cash flows occur — making it more accurate for multi-period investments. See our ROI Calculator.
What if a cash flow is zero in a given period?
Enter zero. Zero cash flows are valid in the IRR calculation — the investment simply produces nothing in that period.
Can IRR be negative?
Yes — a negative IRR means the investment loses money (returns less than the initial investment over its life).
Conclusion
IRR is the benchmark return metric for investments with multiple cash flows. Use it alongside NPV for a complete picture. When a project's IRR beats your required return, you have a strong case to proceed.
Related: ROI Calculator | Present Value Calculator | Payback Period Calculator | Investment Calculator
Business Tip
Don't rely on IRR alone! Combine it with Net Present Value (NPV) to see the absolute dollar gain, as IRR doesn't account for the scale of the investment.
