Calculate internal rate of return for any investment. Enter cash flows, compare IRR vs hurdle rate, and visualize the NPV profile. Free.
Enter positive values for inflows and negative values for additional outlays.
Estimates only. IRR assumes every interim cash flow is reinvested at the IRR itself, which is rarely true — use MIRR when that matters. Cash-flow forecasts are assumptions, not facts.
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Internal Rate of Return (IRR) is the discount rate that makes the net present value of all cash flows equal to zero. It represents the annualized expected return of an investment, accounting for the time value of money. Whether you're evaluating a rental property, startup venture, equipment purchase, or corporate project, IRR gives you a single percentage to compare against your required rate of return (hurdle rate). This calculator computes IRR using the Newton-Raphson iterative method, plus MIRR, NPV at your hurdle rate, payback period, and a full sensitivity analysis — all in real time as you enter your cash flows.
Internal Rate of Return is the annualized rate of return at which the present value of future cash inflows exactly equals the initial investment outlay. In mathematical terms, IRR is the rate r that satisfies the equation where NPV equals zero. Unlike simple return metrics such as ROI, IRR accounts for the time value of money — a dollar received today is worth more than a dollar received five years from now. IRR is widely used in corporate finance, real estate investing, venture capital, and project evaluation to determine whether an investment will meet or exceed the minimum acceptable return.
IRR Formula
Evaluate a buy-and-hold rental by entering purchase price, annual rental income, operating costs, and estimated sale price. IRR reveals whether the total return justifies the capital locked in the property.
Assess a startup investment with negative early-year cash flows (burn periods) followed by hockey-stick growth. IRR helps VCs compare deals across different stages, industries, and time horizons.
Determine whether buying new manufacturing equipment will generate enough cost savings or revenue to justify the capital expenditure, compared to leasing or doing nothing.
Analyze short-term renovation projects where you buy, spend on renovations, and sell within 1-3 years. IRR accounts for the timing of renovation costs and the final sale proceeds.
Finance teams use IRR to rank competing projects — expansion, R&D, acquisitions — and allocate limited capital to the initiatives with the highest expected returns.
IRR distills complex multi-year cash flow projections into one annualized percentage. This makes it easy to compare a rental property generating $18,000/year against a startup returning irregular cash flows over six years — both reduced to a single return rate.
Unlike simple ROI which ignores when returns arrive, IRR properly weights earlier cash flows more heavily than later ones. An investment returning $50,000 in year one is worth more than one returning $50,000 in year ten, and IRR captures this difference precisely.
By comparing IRR against your minimum acceptable rate of return (hurdle rate), you get a clear invest-or-reject decision. If IRR exceeds the hurdle, the project creates value. If it falls below, capital is better deployed elsewhere.
Real estate investors and PE firms rely on IRR to evaluate properties and portfolio companies. It accounts for irregular cash flows like renovation costs, rental income, and eventual sale proceeds in a single return figure.
Modified IRR (MIRR) addresses a key IRR limitation: the assumption that positive cash flows are reinvested at the IRR itself. MIRR lets you specify a realistic reinvestment rate and financing cost, producing a more conservative and often more accurate return estimate.
IRR is calculated by finding the discount rate that makes the net present value (NPV) of all cash flows equal to zero. There is no closed-form algebraic solution, so IRR is found iteratively using numerical methods like Newton-Raphson. You start with a guess rate, compute NPV, then adjust the rate up or down until NPV converges to zero. This calculator handles all iterations automatically — just enter your cash flows and the IRR is computed in milliseconds.
ROI is a total; IRR is a rate per year. Simple ROI divides total profit by total invested and ignores when the money arrives, so the same profit scores identically whether it takes two years or ten. IRR is the annual discount rate that makes the investment's net present value zero, so it prices timing directly. This calculator shows both — $50,000 invested and $75,000 returned over five years is a 50% simple ROI but a 15.24% IRR.
There is no universal threshold: a good IRR is one that clears your own hurdle rate, the return available on the next-best use of the same money at the same risk. Public-market investors often benchmark against a long-run equity return near 10% a year, while private equity and venture funds target 20% to 30% because most of their deals return nothing. Compare the IRR to your hurdle, not to someone else's.
An IRR of 20% over 5 years means the investment earns a 20% annualized return across the five-year holding period. This doesn't mean you earn 20% on your original investment each year — IRR accounts for compounding and the timing of each cash flow. A $100,000 investment with 20% IRR over 5 years would grow to approximately $248,832 in total value, equivalent to compounding at 20% annually.
IRR and NPV are complementary metrics. NPV tells you the dollar amount of value created or destroyed at a given discount rate. IRR tells you the exact rate at which NPV equals zero — the breakeven return rate. Use NPV when comparing projects of different sizes (a $1M project with 15% IRR may create more value than a $100K project with 25% IRR). Use IRR for quick comparisons and when communicating returns to stakeholders.
Modified Internal Rate of Return (MIRR) addresses two IRR limitations: (1) IRR assumes positive cash flows are reinvested at the IRR rate itself, which may be unrealistically high; (2) IRR can produce multiple solutions when cash flows change signs more than once. MIRR solves both by letting you specify a realistic reinvestment rate for positive cash flows and a finance rate for negative cash flows, always producing a single, unique answer.
For real estate investments, a good IRR depends on the property type and risk level. Stabilized commercial properties typically target 8-12% IRR. Value-add multifamily deals aim for 14-18%. Ground-up development projects may require 18-25% to compensate for construction risk. Fix-and-flip investors often target 20%+ given the short holding period and renovation uncertainty. Always compare against your opportunity cost and local market conditions.
Yes, a negative IRR means the investment loses money on a time-value-adjusted basis. If the total cash inflows are less than the initial investment, or if returns arrive too late relative to the investment amount, IRR will be negative. A negative IRR is a clear signal to reject the investment — you would earn a higher return simply by not investing.
Multiple IRRs occur when cash flows change sign (positive to negative or vice versa) more than once. Mathematically, the IRR equation is a polynomial, and Descartes' rule of signs tells us there can be as many positive real roots as sign changes. This commonly happens with investments that have mid-project capital calls or renovation phases. When multiple IRRs are possible, use MIRR instead for a single, reliable return metric.
In Excel, use =IRR(values, [guess]) where values is a range of cash flows starting with the initial investment as a negative number. For example: =IRR((-100000, 30000, 35000, 40000, 45000, 50000)) returns approximately 17.4%. For MIRR, use =MIRR(values, finance_rate, reinvestment_rate). Note that Excel's IRR function may return different results depending on the guess parameter, especially with non-conventional cash flows.