IRR Calculator
At 15.24% the present value of the cash flows exactly equals the $50,000.00 invested. Compare it with your cost of capital.
How the IRR calculation works
IRR is the rate that makes NPV zero
It is the discount rate at which the present value of all future cash flows equals what you invested.
It is found by trial and error
The calculator tries rates until NPV crosses zero, then narrows in. Financial calculators and Excel do the same.
Compare IRR with your cost of capital
If you borrow at 8% and the project's IRR is 15.24%, it more than pays for the money. Below your hurdle rate, it doesn't.
Mixed cash flows can have no IRR
If every cash flow has the same sign, or the signs flip more than once in odd ways, there may be no single rate. The result then shows —.
Worked example. A $50,000 investment that returns $15,000 a year for five years has an IRR of 15.24%. It returns $75,000 in total, a 1.50× money multiple.
IRR FAQ
How do I calculate IRR on a financial calculator?
Enter the initial investment as a negative CF0, then each year's cash flow as CF1, CF2 and so on, with the count for each if repeated. Press IRR and compute. The answer should match this page.
What is IRR?
IRR, or internal rate of return, is the yearly return an investment earns once the timing of its cash flows is taken into account. It is the discount rate at which the investment's net present value (NPV) is exactly zero.
What is the IRR formula?
IRR is the rate r that solves 0 = −investment + Σ cash flow in year t ÷ (1 + r)^t. There is no closed-form answer, so it is solved by trial and error.
How do I calculate IRR in Excel?
Put the investment as a negative number in one cell and each year's cash flow below it, then use =IRR(values, [guess]), for example =IRR(A1:A6). The values need at least one negative and one positive number. Excel starts from a 10% guess and returns #NUM! if it finds no result after 20 tries. For cash flows on irregular dates, use =XIRR(values, dates, [guess]). The default example here gives 15.24% in both this page and Excel's IRR.
What is the difference between IRR and NPV?
NPV gives a dollar amount at a discount rate you choose; IRR gives the rate at which NPV is zero. For the default example, NPV is $9,890.65 at 8% and $6,861.80 at 10%, and it falls to zero at the 15.24% IRR. If IRR is above your required rate, NPV at that rate is positive.
What is a good IRR?
One above your cost of capital or the return you could get elsewhere. If your loan costs 9%, a project with a 15% IRR adds value; one at 6% does not.
Why does the calculator show — for IRR?
IRR only exists when cash flows change sign, usually money out first and money in later. If all flows are positive or all negative, no rate brings NPV to zero.
What is the difference between IRR and modified IRR?
Modified IRR (MIRR) assumes cash you get back is reinvested at a rate you choose, instead of at the IRR itself. This page calculates standard IRR.
Sources: Microsoft Support: IRR function · Microsoft Support: XIRR function