IRR calculator — the yearly return built into a set of cash flows

How to use the IRR calculator

1. Enter the Initial investment (the outlay at year 0) as a positive number.
2. Enter the Cash flow for each year (one per line), from year 1 onward. Use a minus sign for a year that costs money.
3. Enter the Required return to compare, such as your borrowing rate or the return on an alternative.
4. Read Internal rate of return, Required return and Verdict, then look at the NPV at different discount rates table.

What it does and when to use it

Percentages are easy to compare. If a rental property, a piece of equipment or a small business deal can be summed up as “about 17% a year”, you can set it next to a loan rate or a deposit rate. IRR is that summary. It is widely used to compare projects, private investments and business cases.

The verdict line answers the practical question: is the IRR above, below or equal to the return you need? A project whose IRR beats your required return also has a positive NPV at that rate. To see the value in money terms, use the NPV calculator with the same cash flows. For a quick look at how soon the outlay is recovered, the payback period calculator is simpler. For a single investment with no cash in between, the investment return calculator gives the CAGR directly.

How it works

OMB Circular A-94 defines the internal rate of return as the discount rate that sets the net present value to zero. The calculator solves:

0 = −C + CF₁ ÷ (1 + IRR) + CF₂ ÷ (1 + IRR)² + … + CFₙ ÷ (1 + IRR)ⁿ

There is no direct formula for this, so it searches. It starts with a very wide range of rates, from just above −100% to 10,000%, and halves the range again and again (bisection) until NPV is practically zero. It also builds a table of NPV at 0%, 5%, 10%, 15%, 20%, 25% and 30%, so you can see where NPV crosses zero.

If the cash flows add up to less than the investment, the calculator warns you that the IRR is negative.

Worked examples

These figures come from the calculator’s own function.

A four-year project. Initial investment 1,00,000, cash flows 30,000, 35,000, 40,000 and 45,000, required return 10%. IRR 17.09%, verdict “Above the required return”. The NPV table shows 16,986.54 at 10%, 4,581.53 at 15% and −5,844.91 at 20%, so zero falls between 15% and 20%.

A one-year deal. Invest 1,000 and get 1,100 back after a year, with a 10% required return. IRR 10%, verdict “Equal to the required return”.

Inflows that never repay the cost. Invest 1,00,000 and receive 20,000 a year for four years. The calculator warns that the inflows never repay the investment. IRR −8.36%, verdict “Below the required return”.

Limits and tips

• Yearly cash flows only, each at the end of its year.
• Reinvestment assumption. IRR quietly assumes money received along the way could be reinvested at the IRR itself, which may be unrealistic for a very high IRR.
• Scale is hidden. A 40% IRR on a small sum may add less value than 15% on a large one.
• No currency field. IRR is a percentage, so units do not matter; enter all amounts in the same currency.
• Calculated in your browser.