IRR Calculator — Internal Rate of Return for Projects

Why IRR Beats Simple ROI for Projects

ROI is a single percentage. IRR factors in when each cash flow happens. A project returning $100K split over 5 years is worth less than a project returning $100K in year 1 — IRR captures that. ROI doesn’t.

Most enterprise CFOs use a hurdle rate — typically 10–15% — and accept any project with IRR above it.

The Math

IRR is the rate that makes NPV equal zero. There’s no closed-form solution; the calculator uses bisection search to converge on the rate.

Worked Example

IRR vs NPV — Which to Trust?

• NPV tells you the absolute dollar value created. Best for ranking projects of different sizes.
• IRR tells you the rate of return. Best for comparing projects to your hurdle rate.
• When they conflict (different scale or timing), trust NPV. IRR can mislead when projects have unusual cash-flow patterns (e.g., late large outflows, multiple sign changes).

Common IRR Pitfalls

• Multiple IRRs: if cash flows change sign more than once, IRR may have multiple solutions. Use NPV instead.
• Reinvestment assumption: IRR assumes you can reinvest interim cash flows at the IRR itself. Often unrealistic at high IRRs. Modified IRR (MIRR) fixes this.
• Doesn’t account for project size: a 50% IRR on $1K is less valuable than a 20% IRR on $10M.