IRR Calculator
Find the internal rate of return — the single annual rate that makes a series of cash flows break even. It is the return measure that accounts for the timing and size of every payment, which is why it drives real capital-budgeting decisions.
- Updated Aug 6, 2026
- Reviewed by the BSF CPA Editorial Team
- US business & investment use
- 11 min read
IRR is the discount rate at which an investment's net present value equals zero. Put in $1,000 today and receive $300, $400, $500, and $600 over the next four years, and your IRR is 24.89% — the single annual rate that exactly balances what you paid against what you got back, accounting for when each dollar arrived.
Enter your cash flows one per line, starting with the initial outlay as a negative number. A project is generally worth pursuing when its IRR exceeds your cost of capital.
IRR (Internal Rate of Return) is the gold standard for evaluating multi-year projects — business expansions, equipment purchases, real-estate developments. It’s the discount rate at which the project’s Net Present Value equals zero. If IRR > your hurdle rate, the project creates value. Below, it destroys value.
IRR & XIRR Calculator
The discount rate at which a series of cash flows breaks even — from evenly spaced periods, or from flows on the actual dates they happened.
Negative for investments, positive for returns. Start with initial outlay (year 0).
IRR Analysis
How to read your result
The calculator returns the IRR of the cash flows you enter, plus the net present value at a 10% discount rate as a reference. The IRR is the headline; how you use it depends entirely on one comparison.
An IRR of 24.89% is not "good" in isolation — it is good relative to what your money costs. If financing or your next-best alternative costs 10%, a 24.89% IRR creates value. If your cost of capital were 30%, the same project destroys it. IRR is always a comparison, never an absolute verdict.
The NPV-at-10% figure is a sanity check: when NPV is positive at a given rate, the IRR is above that rate; when NPV is zero, that rate is the IRR. The two measures are two views of the same underlying math.
What IRR is and is not
The internal rate of return is the annualized rate that sets the net present value of all cash flows — money out and money in — to exactly zero. Put differently, it is the rate at which the investment precisely breaks even in present-value terms.
Its great strength over simpler measures is that it accounts for when money moves, not just how much. A dollar returned next year is worth more than the same dollar returned in year five, and IRR captures that automatically. Total ROI and CAGR cannot, because they only look at endpoints.
What IRR is not is a dollar figure or a measure of scale. A tiny project and a huge one can share the same IRR while creating vastly different amounts of value — which is exactly why IRR should be read alongside NPV, never instead of it.
Who uses this calculator
- Business owners and CFOs ranking capital projects against a hurdle rate.
- Real estate investors evaluating a deal's cash flows plus its eventual sale.
- Private-equity and venture investors whose entire performance is quoted in IRR.
- Anyone comparing investments whose money goes in and comes out on a schedule.
The formula and its link to NPV
IRR is defined implicitly — it is the rate r that solves this equation:
- CFt The cash flow in period t. Period 0 is your initial investment, entered as a negative number.
- r The internal rate of return — the value being solved for.
- t The period index, one line per period, assumed evenly spaced (usually annual).
There is no clean algebraic solution for r — it cannot be isolated the way CAGR can. Instead the rate is found numerically, by iterating until NPV lands on zero. This calculator uses the Newton-Raphson method, the same technique behind a spreadsheet's IRR function.
IRR assumes each cash flow is one equal period apart — typically one year. Start with your initial outlay as a negative number, then list each subsequent inflow or outflow. If your cash flows fall on irregular calendar dates, IRR is the wrong tool; use XIRR, which accounts for the exact dates.
Three worked US examples
Each is computed with the engine above. Enter the cash flows one per line to reproduce them.
−$50,000, then $6,000 a year for 4 years, then $76,000 in year 5
You invest $50,000, collect $6,000 of net rental income annually, and in year five collect the final $6,000 plus $70,000 from selling — $76,000 that year. Cash flows: −50000, 6000, 6000, 6000, 6000, 76000.
IRR: 17.63%. That single rate blends the modest annual income with the lump-sum gain at exit into one comparable annual return — well above a typical cost of capital, so the deal creates value.
−$100,000 now, nothing for years, then $250,000 in year 5
No interim cash flow, a 2.5× return at exit. Cash flows: −100000, 0, 0, 0, 0, 250000.
IRR: 20.11%. A 150% total gain sounds enormous, but stretched over five years with everything paid at the end, it annualizes to about 20% — which is exactly why patient capital demands high multiples: the clock is working against it the whole time.
−$25,000, then $8,000 of annual savings for 4 years
A machine costs $25,000 and saves $8,000 a year for four years. Cash flows: −25000, 8000, 8000, 8000, 8000.
IRR: 10.66%. This is the knife-edge case that shows why IRR matters. Total cash back is $32,000 — a 28% gain that looks fine — but annualized it is only 10.66%. If the company's cost of capital is 12%, this project quietly loses money despite returning more cash than it cost.
IRR vs your hurdle rate
The decision rule for IRR is simple and it is the whole point of the measure: accept a project when its IRR exceeds your hurdle rate — the minimum acceptable return, usually your weighted average cost of capital. Reject it when the IRR falls below.
| If IRR is… | …relative to hurdle rate | Decision |
|---|---|---|
| Above the hurdle | Creates value; NPV is positive at your cost of capital | Accept |
| Equal to the hurdle | Breaks even in present-value terms | Indifferent |
| Below the hurdle | Destroys value; NPV is negative | Reject |
Decide your minimum acceptable return in advance, based on your cost of capital and the project's risk. Riskier projects deserve a higher hurdle. Choosing the threshold after seeing an attractive IRR is how weak projects get rationalized into approval.
IRR vs NPV, ROI and CAGR
| Measure | Answers | Handles timing of flows? | Best for |
|---|---|---|---|
| IRR | What annual rate does this earn? | Yes | Ranking projects against a hurdle rate |
| NPV | How much value in today's dollars? | Yes | The definitive accept/reject and scale test |
| Total ROI | What's the cumulative gain? | No | A quick headline for one fixed period |
| CAGR | What smoothed annual growth? | No (endpoints only) | A single lump sum in and out |
For ranking mutually exclusive projects, NPV is the more reliable guide because it measures value created in dollars, while IRR can favor a small, high-percentage project over a larger one that builds far more wealth. Use IRR to communicate the return and screen against a hurdle; use ROI for simple single-period gains and CAGR for a lump sum. But when the two conflict on which project to choose, follow NPV.
Where IRR breaks down
IRR is powerful but has genuine failure modes that every user should know before relying on it.
- Multiple IRRs. When cash flows change sign more than once — an outflow, then inflows, then a large outflow again — the equation can have several valid solutions. A single reported IRR may be misleading; NPV is unambiguous.
- No real IRR at all. Some cash-flow patterns have no rate that zeroes NPV. The calculator will not converge because no answer exists.
- The reinvestment assumption. IRR implicitly assumes interim cash flows are reinvested at the IRR itself, which is often unrealistically high. MIRR (modified IRR) corrects this by using a separate, realistic reinvestment rate.
- Scale blindness. IRR is a percentage, so it can rank a $10,000 project above a $10,000,000 one that creates far more total value. Always check NPV for scale.
- Timing distortion for short bursts. A quick early return can produce a spectacular IRR that says little about long-term wealth building.
Common mistakes
- Forgetting the negative sign on the initial investment. The first cash flow is money leaving you and must be entered as negative, or the IRR is meaningless.
- Judging IRR without a hurdle rate. A number alone decides nothing. IRR is only actionable against your cost of capital.
- Using IRR for irregular dates. IRR assumes equal spacing. Real cash flows on specific calendar dates need XIRR.
- Trusting IRR when signs flip repeatedly. Multiple sign changes can produce multiple or nonsensical IRRs. Fall back to NPV.
- Ranking projects on IRR alone. A higher IRR does not always mean more value created. Check NPV before choosing between projects.
- Ignoring the reinvestment assumption. If interim cash flows realistically earn far less than the IRR, the true return is lower; consider MIRR.
- Omitting the terminal value. For a property or a business, the sale proceeds are usually the largest cash flow. Leaving out the exit understates IRR badly.
Best practices
Always compute NPV alongside IRR
IRR tells you the rate; NPV tells you the dollars and settles ties. Reporting both is standard practice in any serious capital decision.
Use XIRR for real-world dates
The moment cash flows land on irregular dates, switch to XIRR. IRR's equal-spacing assumption will otherwise quietly distort the answer.
Include every cash flow, especially the exit
Capture the initial cost, all interim flows, and the terminal or sale value. The exit is usually the biggest number and the one most often forgotten.
Consider MIRR for interim cash flows
If your project throws off cash you cannot realistically reinvest at the IRR, MIRR gives a more grounded figure using a real reinvestment rate.
Frequently asked questions
What is IRR in simple terms?
The internal rate of return is the single annual rate at which an investment breaks even — the rate that makes the present value of all its cash flows sum to zero. If your IRR is higher than what your money costs you, the investment creates value.
What is a good IRR?
There is no universal number — a good IRR is any IRR comfortably above your cost of capital for that level of risk. For many US businesses the hurdle sits around 8–15%; venture and private-equity investors often target 20%+ because most of their bets fail and the winners must carry the portfolio.
What is the difference between IRR and ROI?
ROI measures a single cumulative gain and ignores timing; IRR accounts for exactly when each cash flow occurs and expresses the result as an annual rate. Use ROI for a simple one-in, one-out situation and IRR whenever money moves in and out on a schedule.
What is the difference between IRR and NPV?
They are two views of the same math. NPV discounts all cash flows at a rate you choose and reports the value in today's dollars. IRR finds the specific rate that makes that NPV zero. NPV tells you how much value is created; IRR tells you the return. When ranking projects, NPV is the more reliable tie-breaker.
When should I use XIRR instead of IRR?
Use XIRR whenever your cash flows occur on irregular calendar dates rather than at neat annual intervals. IRR assumes each flow is exactly one equal period apart; XIRR uses the actual dates, which matters for real portfolios and deals.
Can IRR be negative?
Yes. If the investment returns less in total than you put in, the IRR is negative, meaning the rate that zeroes NPV is below zero. It signals the project lost money on an annualized basis.
Why does my investment have two different IRRs?
When cash flows change sign more than once — for example an outflow, then inflows, then another large outflow — the underlying equation can have multiple mathematical solutions. In that case no single IRR is trustworthy, and you should rely on NPV at your cost of capital instead.
How do I enter cash flows in this calculator?
Enter one cash flow per line. The first line is your initial investment as a negative number, followed by each period's inflow (positive) or outflow (negative). Flows are assumed to be one equal period — usually a year — apart.
What is MIRR and how is it different?
The modified internal rate of return fixes IRR's unrealistic assumption that interim cash flows are reinvested at the IRR itself. MIRR lets you specify a separate, realistic reinvestment rate, so it usually produces a lower and more credible figure for projects that generate cash along the way.
Does IRR account for risk?
No — IRR is purely a function of the cash flows you enter. You account for risk by setting a higher hurdle rate for riskier projects, so that only investments with enough return to justify the risk clear the bar.
Is IRR annual?
By default, yes, when each cash flow is one year apart. IRR returns a rate per period; if your periods are months, the result is a monthly rate that you would need to annualize. Most capital-budgeting use assumes annual periods.
Why does IRR assume reinvestment at the IRR?
It falls out of the math: discounting every cash flow at the IRR implicitly treats interim cash as if it compounds at that same rate until the end. When the IRR is very high, that assumption overstates the realistic outcome, which is the reason MIRR exists.
Methodology & sources
Methodology. IRR is computed as the discount rate that sets the net present value of the entered cash flows to zero, solved numerically by Newton-Raphson iteration — the same approach used by spreadsheet IRR functions. Cash flows are assumed evenly spaced (one period apart). The reference NPV is computed at a 10% discount rate. Every figure in the worked examples was produced by this same engine and independently verified against a separate implementation.
- Standard corporate-finance treatment of IRR, NPV, and MIRR as taught in US CPA and CFA curricula.
- Cost-of-capital and hurdle-rate ranges reflect conventional US small-business and middle-market estimates.
Figures current as of August 6, 2026.
Related resources
Calculators
- XIRR CalculatorIRR for cash flows on irregular dates
- ROI CalculatorTotal and annualized return, single period
- CAGR CalculatorSmoothed annual growth of a lump sum
- Compound Interest CalculatorGrowth from a lump sum plus contributions
- Payback Period CalculatorHow long until an investment pays for itself
- Break-Even CalculatorThe volume at which a project turns profitable
Learn more
- Stocks vs Real EstateComparing returns across asset classes
- Finance CoursesFinancial modelling and analysis from CPA instructors
- All CalculatorsThe full Business Skill Forge tool library
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