IRR Calculator (Internal Rate of Return)

Calculate the internal rate of return for an investment with multiple cash flows. Compare IRR against your required rate of return and see NPV at any discount rate.

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Your required rate of return or cost of capital

Yr 1
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Yr 2
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Yr 3
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Yr 4
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Yr 5
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Calculate IRR, NPV, and profit multiple for your cash flows

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Pro Tip

When evaluating investments, use IRR to check if the return meets your minimum threshold, and NPV to measure total value created. An investment should ideally pass both tests: IRR above your hurdle rate AND positive NPV.

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Understanding Internal Rate of Return (IRR)

The Internal Rate of Return (IRR) is the discount rate at which the net present value (NPV) of all cash flows from an investment equals zero. In simpler terms, it is the annualized rate of return that an investment is expected to generate. IRR is one of the most widely used metrics in corporate finance, private equity, and real estate investing.

IRR vs. ROI: Return on Investment (ROI) measures total return as a simple percentage of the initial investment, without accounting for the time value of money. A 50% ROI over 1 year is very different from a 50% ROI over 10 years. IRR annualizes returns and accounts for the timing of each cash flow, making it a more accurate measure for comparing investments with different time horizons and cash flow patterns.

IRR vs. NPV: While IRR tells you the rate of return, NPV tells you the dollar value created by the investment at a given discount rate. Both are valuable: use NPV when comparing projects of different sizes (a larger project with a lower IRR may create more total value), and use IRR when evaluating whether an investment meets your minimum required return (hurdle rate).

When to use IRR: IRR is most useful for evaluating capital-intensive projects, real estate investments, private equity deals, and any investment where cash flows occur at different times. If the IRR exceeds your cost of capital or required rate of return, the investment is generally considered worthwhile. If the IRR is below your hurdle rate, the investment does not generate sufficient return.

Limitations: IRR assumes that interim cash flows are reinvested at the IRR rate itself, which may be unrealistic for very high IRRs. It can also produce multiple solutions for projects with alternating positive and negative cash flows. In these cases, Modified IRR (MIRR) or NPV analysis may be more appropriate.

IRR Formula

Internal Rate of Return

0 = ∑ CFt / (1 + IRR)t   for t = 0 to n

Where:

CF_t = Cash flow at time period t (negative for investments, positive for returns)

IRR = Internal rate of return (the unknown we solve for)

t = Time period (0 = initial investment, 1 = year 1, etc.)

n = Total number of periods

Example

For a $100,000 investment with 5 years of cash flows ($15K, $20K, $25K, $30K, $50K):

  • • 0 = -100,000/(1+IRR)^0 + 15,000/(1+IRR)^1 + 20,000/(1+IRR)^2 + ...
  • • Total inflows = $15K + $20K + $25K + $30K + $50K = $140,000
  • • Simple ROI = ($140,000 - $100,000) / $100,000 = 40%
  • • Solve iteratively using Newton's method
  • • IRR = ~12.05% (annualized, accounting for cash flow timing)
  • • Profit multiple = $140,000 / $100,000 = 1.40x

Frequently Asked Questions

What is a good IRR for an investment?
A 'good' IRR depends on the type of investment and the risk involved. As a general rule, an IRR above your cost of capital or hurdle rate is considered acceptable. For real estate, 8-12% is often targeted. For private equity, 15-25% is typical. For venture capital, 25%+ is expected due to higher risk. Always compare IRR to alternative investments with similar risk profiles.
What is the difference between IRR and ROI?
ROI (Return on Investment) measures total return as a simple percentage without considering the time value of money. IRR annualizes the return and accounts for when each cash flow occurs. For example, earning $50,000 on a $100,000 investment (50% ROI) is great if it happens in 1 year but less impressive over 10 years. IRR would be ~50% in the first case but only ~4.1% in the second.
Can IRR be negative?
Yes, a negative IRR means the investment loses money on a present-value basis. This happens when total cash inflows are less than the initial investment. A negative IRR indicates the project does not recover its initial cost and should generally be avoided unless there are non-financial benefits being considered.
What does the profit multiple (MOIC) mean?
The profit multiple, also called Multiple on Invested Capital (MOIC), is the ratio of total cash inflows to total cash invested. A 1.5x multiple means you received $1.50 back for every $1.00 invested. Unlike IRR, MOIC does not account for the timing of returns. A 2.0x MOIC over 3 years is better than a 2.0x MOIC over 10 years, which is why both IRR and MOIC should be considered together.
When should I use NPV instead of IRR?
Use NPV when comparing projects of different sizes or when cash flows change sign multiple times (alternating positive and negative). A large project with a lower IRR may generate more total value (higher NPV) than a small project with a higher IRR. NPV also avoids the reinvestment rate assumption problem of IRR and always gives a unique answer.