IRR Calculator

IRR is the discount rate that makes a project's net present value exactly zero — the return the investment earns on the capital while it is tied up. There is no closed-form solution for more than a couple of periods, so it is found numerically: this calculator brackets the answer and bisects until the NPV is effectively zero.

Inflows of $3,000, $4,000, $5,000, and $3,000 against a $10,000 outlay give an IRR of about 18.0%. Total cash back is 1.5× the investment, but that headline hides the timing — the same $15,000 arriving entirely in year four would be a far lower IRR. At a 10% hurdle rate the project's NPV is $1,839, confirming it clears the bar.

IRR implicitly assumes each interim cash flow is reinvested at the IRR itself. If a project shows a 30% IRR, the arithmetic assumes you can redeploy every distribution at 30% — rarely true. This inflates IRR relative to what you actually earn, and the effect grows with longer projects and earlier cash flows. MIRR, which discounts at your real reinvestment rate, exists precisely to fix this.

Cash flows that change sign more than once can produce multiple IRRs, all mathematically valid and none meaningful — a project with a large cleanup cost at the end is the classic case. IRR also can't rank projects of different sizes: 50% on $1,000 beats 20% on $1,000,000 by IRR and loses badly by dollars created. And it says nothing about risk, so a high IRR on a speculative venture isn't comparable to a lower one on a safe asset.

Treat IRR as a screening number and NPV as the decision. IRR is genuinely useful for comparing similarly sized, similarly risky projects and for communicating returns, which is why private equity and real estate quote it constantly. Just remember it is sensitive to timing: extending a holding period at the same total profit lowers the IRR, which is why sponsors sometimes exit earlier than value alone would suggest.