To calculate IRR, enter the upfront investment as a negative number followed by the cash flow of each period: the calculator returns the discount rate at which the investment's NPV is zero. Free, instant, runs in your browser.
The Internal Rate of Return (IRR) is the annualised rate of return that makes the Net Present Value (NPV) of all cash flows equal to zero. It is one of the most widely used metrics in capital budgeting and investment analysis.
IRR formula
IRR is the value of r that satisfies:
0 = CF₀ + CF₁/(1+r) + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ
There is no closed-form solution — IRR is found iteratively (Newton-Raphson method).
IRR decision rule
- IRR > WACC (hurdle rate): Accept the project — it creates value
- IRR < WACC: Reject the project — it destroys value
- IRR = WACC: Break-even — indifferent
IRR limitations
- Multiple IRRs: cash flows that change sign more than once can yield multiple IRRs
- Scale blindness: IRR ignores project size — a 50% IRR on $1,000 is worth less than 20% on $1M
- Reinvestment assumption: assumes interim cash flows are reinvested at the IRR rate, which may be unrealistic
For these reasons, IRR is often used alongside NPV rather than in isolation.
Worked example
You invest $10,000 today and expect $3,000, $4,000, $5,000 and $3,000 over the next four years. Enter -10000, 3000, 4000, 5000, 3000: the IRR is 18.03%.
Check it against a hurdle rate. At a 10% discount rate the same cash flows have an NPV of about +$1,839, so the project clears the bar. At 20% the NPV turns negative (about -$382), which is why the IRR sits between the two.
Frequently asked questions
How do you calculate IRR? Find the rate r that makes the sum of discounted cash flows equal to zero. There is no closed formula, so it is solved by iteration (trial and error, or Newton-Raphson). In a spreadsheet, use =IRR(range); this calculator does the iteration for you.
What is a good IRR? One that is above your cost of capital or hurdle rate. For a business project that is usually the WACC; early-stage investors often look for 20-30% or more because of the risk.
What is the difference between IRR and NPV? NPV gives a dollar amount at a chosen discount rate; IRR gives the rate at which that amount is zero. Use IRR to compare rates of return and NPV to compare absolute value created.
Can IRR be negative? Yes. A negative IRR means the cash flows never repay the initial investment, even without discounting.
When does IRR fail? With cash flows that change sign more than once, there can be several IRRs or none. Use the MIRR calculator in that case.