IRR Calculator
Calculate Internal Rate of Return from a series of cash flows. Includes NPV profile and MIRR.
Quick Presets
Enter as positive — treated as outflow at Year 0
Annual Cash Flows
Modified IRR (MIRR) — optional
Internal Rate of Return (IRR)
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annualised return on investment
—
NPV at 0%
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Total Inflows
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Initial Investment
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Investment Multiple
Investment Decision Guidance
Modified IRR (MIRR)
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MIRR accounts for reinvestment at the specified reinvestment rate rather than the IRR itself.
Cash Flow Analysis
| Year | Cash Flow | PV at IRR | Cumulative CF |
|---|
NPV Profile
NPV vs Discount RateCalculation Details
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How to use this calculator
IRR requires a sequence of cash flows: one outflow at the start, followed by a series of inflows over time.
Initial Investment is what you put in at Year 0. Enter it as a positive number. The calculator treats it as a negative cash flow at time zero. For a business acquisition, this is the purchase price. For a development project, it’s the construction cost.
Number of Periods controls how many cash flow rows appear. Select 1 through 10. For most project finance and investment analysis, 5-10 years covers the hold period.
Cash Flows (Year 1 through Year N) are the annual cash inflows you expect from the investment. For real estate, this is net operating income after expenses. For a project, it’s incremental after-tax cash flows. For a business, it’s free cash flow distributed to equity holders or the full firm depending on what you’re measuring.
Cash flows can be negative in interim years (a development project may have holding costs before it generates income). Enter negative values where applicable.
Hurdle Rate is optional. Enter your minimum required return. If the calculated IRR exceeds this rate, the calculator displays an ACCEPT indicator. If it falls short, it shows REJECT. Most companies set hurdle rates at their WACC plus a risk premium.
MIRR toggle (Modified IRR) appears when you enable it. It requires two additional rates: a reinvestment rate (what positive interim cash flows can earn when reinvested) and a finance rate (the cost of funding negative interim cash flows). MIRR is more realistic than IRR for most situations.
Use the presets to pre-load representative investment scenarios, then adjust values to match your actual situation.
5-year investment project
Initial investment: $150,000 Cash flows: Year 1: $25,000 / Year 2: $35,000 / Year 3: $45,000 / Year 4: $55,000 / Year 5: $60,000
IRR ≈ 15.3%
If the hurdle rate is 12%, this investment clears it. If the hurdle rate is 18%, it doesn’t. The IRR tells you the break-even required return.
Presets load realistic scenarios: Project A models manufacturing equipment with steadily rising cash flows, Real Estate models a rental property hold with a sale in year 7, and Startup models a venture with early losses turning profitable. All values are illustrative. Replace them with your actual projected cash flows before drawing conclusions.
What IRR actually is
IRR is the discount rate at which the Net Present Value of all cash flows equals exactly zero.
In other words: it’s the annual return rate that makes the investment exactly break even on a time-value-of-money basis. At the IRR, the present value of all future cash inflows equals the initial investment.
If that rate is higher than what you need to earn (your hurdle rate), the investment creates value. Lower, and it destroys it.
IRR is the answer to: "What rate of return would this investment need to generate to be worth exactly what I'm paying?" If the answer is higher than your cost of capital, you've got a good investment. If it's lower, you don't.
The math requires iteration. There’s no algebraic solution for IRR — you have to solve numerically. The calculator uses the Newton-Raphson method, starting with a guess and refining until the NPV converges to zero. For most well-behaved cash flow patterns, this converges in under 50 iterations.
The formula and the calculation
Formally, IRR is the rate r that satisfies:
For a simple 3-year project: 0 = −C0 + CF1/(1+r) + CF2/(1+r)² + CF3/(1+r)³
That equation has no closed-form solution for r when there are more than 2 periods. The numerical approach:
- Start with a guess (typically r = 10%)
- Calculate NPV at that rate
- Calculate how NPV changes with a small change in r (the derivative)
- Adjust r in the direction that moves NPV toward zero
- Repeat until NPV is essentially zero
The result is the IRR to as many decimal places as needed.
MIRR formula:
Where FV uses the reinvestment rate and PV uses the finance rate.
IRR vs NPV: which one to use
Both metrics use the same underlying cash flow data, but they answer different questions.
NPV tells you the dollar value created (or destroyed) by an investment at your required rate. It’s absolute.
IRR tells you the percentage return the investment generates. It’s relative.
For a single go/no-go decision, both should give the same answer: if NPV > 0 at your hurdle rate, then IRR > hurdle rate. They’re consistent.
The conflict arises when ranking multiple investments. NPV and IRR can rank the same projects differently, and NPV wins that argument.
Why IRR ranking can mislead
Project A: invest $100K, return $130K in year 1. IRR = 30%. NPV at 12% = $16,071.
Project B: invest $1M, return $1.2M in year 1. IRR = 20%. NPV at 12% = $71,429.
IRR ranks Project A higher. NPV says Project B creates $55,000 more value. If you can do either but not both, NPV is right: Project B makes you $55,000 richer.
IRR ignores the scale of the investment. Two investments with the same IRR but different sizes create very different amounts of wealth.
Use NPV when making resource allocation decisions among competing projects. Use IRR to communicate return expectations to investors or compare to a hurdle rate.
IRR benchmarks by investment type
| Investment Category | Typical IRR Target |
|---|---|
| Large infrastructure (toll roads, airports) | 8–12% |
| Core real estate (stabilised, low risk) | 8–11% |
| Value-add real estate | 12–18% |
| Opportunistic real estate / development | 18–25% |
| Private equity (buyout) | 20–30% |
| Venture capital | 25–50%+ |
| Corporate project (WACC + premium) | 15–25% |
| Listed equities (passive index) | 8–11% historical |
Venture capital targets 25–50%+ because most portfolio companies return nothing, so winners need to generate extreme multiples to produce a portfolio-level return that clears the cost of the failures.
Infrastructure tolerates 8–12% because cash flows are contracted, long-duration, often inflation-linked, and backed by government concessions. The risk is lower, so the required IRR is lower.
Real-world examples
Commercial real estate hold
Acquisition price: $3.2M. Annual NOI after expenses: $210,000, $216,300, $222,789, $229,473, $236,357, $243,448, $250,751 for 7 years. Year 7 sale price: $4.1M (this gets added to year 7 cash flow).
Total year 7 cash flow = $250,751 + $4,100,000 = $4,350,751
Running these through the IRR calculation yields approximately 11.4% IRR
If the hurdle rate for this property type is 9%, the investment clears the hurdle. The NPV at 9% is approximately $320,000 — the value premium above the required return.
Private equity acquisition
Buyout price: $50M. Projected free cash flows over 5 years: $5M, $7M, $9M, $11M, $13M. Expected exit in year 5 at 8× final year EBITDA. EBITDA in year 5: $12M. Exit price: $96M.
Year 5 cash flow = $13M + $96M = $109M
IRR ≈ 27.8%
At most PE fund hurdle rates (typically 8-10% for LP pref), the carry economics kick in well above this level. The question is whether the $96M exit is achievable, which depends on EBITDA growth and whether the market still values the sector at 8× at exit time.
Why MIRR is often more realistic
Standard IRR assumes that positive cash flows received in intermediate years get reinvested at the IRR itself. This is almost always unrealistic.
If a project has a 25% IRR, the IRR math assumes the $50,000 you receive in year 2 gets reinvested at 25% for the remaining years. In reality, it probably goes back into the business at WACC, or into a money market fund at 5%. The IRR is overstating what you actually earn because it credits you with a reinvestment rate you won’t achieve.
MIRR fixes this by explicitly separating the finance rate (cost of funding the investment) from the reinvestment rate (what you actually earn on intermediate cash flows).
MIRR vs IRR for the same project
Cash flows: −$200,000 / +$80,000 / +$90,000 / +$100,000
Standard IRR: 22.4%
MIRR with 12% reinvestment rate and 9% finance rate: approximately 17.8%
The 4.6-point gap is the return premium IRR was incorrectly attributing to unrealistic reinvestment assumptions. For comparative purposes, MIRR is the more honest figure.
Multiple IRRs: when the math gets difficult
Most projects have a single IRR because cash flows change sign only once (negative at start, then positive). But projects with multiple sign changes can have multiple IRRs.
A mining project with development costs at years 0–3, cash inflows at years 4–12, and remediation costs at years 13–15 has three sign changes. The NPV equation can have three different rates where NPV = 0. Which one is the real IRR? None of them, definitively.
When cash flows change sign more than once, use NPV instead. NPV always gives a definitive answer regardless of how many sign changes exist, because you’re just adding discounted cash flows with a known rate.
The calculator will still return a value in these cases, but the result may reflect only one of multiple solutions. For irregular or unconventional cash flow patterns, rely on NPV as the primary metric.
If the IRR calculator returns an unexpected result (very high, near zero, or negative when you expected a positive return), check whether your cash flows have multiple sign changes. A project that requires large cash outlays in later years (decommissioning, remediation, earn-out payments, balloon debt repayments) can produce these patterns. Enter the cash flows exactly as they occur, including negative values for outflows in future years.
Common mistakes
Adding terminal value to the wrong year. In a 5-year IRR with a sale in year 5, the sale proceeds are part of year 5’s cash flow, not a separate input. Entering them separately doubles the year 5 inflow.
Using pre-tax cash flows with a post-tax hurdle rate. If your hurdle rate represents an after-tax required return, compare it to after-tax IRR. Pre-tax IRR on a 30% tax-rate project will overstate the return by roughly 30% relative to the after-tax hurdle. Consistent treatment of taxes is required for the comparison to mean anything.
Ignoring timing within a year. Standard IRR assumes cash flows arrive at year-end. A project that generates monthly income compounds more frequently than annual IRR captures. For monthly cash flows, calculate monthly IRR and annualize: Annual IRR = (1 + Monthly IRR)^12 − 1.
Accepting any positive IRR above the hurdle without considering risk. A 20% IRR from a stable contractual cash flow and a 20% IRR from speculative projections are not the same risk-adjusted return. The hurdle rate should already incorporate the risk premium, but if it doesn’t, IRR comparison alone will mislead.
The bottom line
IRR converts the complexity of multiple cash flows at different times into one number you can compare to a required return. It’s the most widely used return metric in private markets for that reason.
Its limitations are real: it ignores scale, can be distorted by unconventional cash flow patterns, and assumes an unrealistic reinvestment rate. MIRR addresses the reinvestment problem. NPV addresses the scale problem.
Use IRR for what it’s good at: communicating return to investors, comparing to a hurdle rate, and screening opportunities quickly. Use NPV when you’re ranking projects or making capital allocation decisions. And use MIRR when reinvestment assumptions matter — which is most of the time in serious analysis.
Frequently Asked Questions
What is Internal Rate of Return (IRR)?
IRR is the discount rate that makes the Net Present Value (NPV) of an investment's cash flows equal to zero. In other words, it is the annualised effective compounding return you earn on capital invested over the project's life. If IRR exceeds your required return (hurdle rate), the investment creates value.
What is a good IRR for an investment?
It depends entirely on the asset class and risk. Private equity typically targets 20–30%+, venture capital 30–50%+, real estate 12–25%, infrastructure 6–12%, and public equities 7–12%. The key benchmark is your hurdle rate — if IRR exceeds the hurdle, the investment is worth pursuing.
How is IRR calculated?
IRR is the rate r that solves: Σ [CF_t / (1+r)^t] = 0 for t = 0 to n. There is no closed-form solution, so it is solved iteratively using Newton-Raphson or bisection methods. Most spreadsheets (Excel's =IRR() function) and financial calculators use Newton-Raphson starting from an initial guess.
What is the difference between IRR and NPV?
NPV tells you the absolute value created (or destroyed) by an investment in today's dollars, given a discount rate. IRR tells you the rate of return the investment generates. NPV is generally preferred for capital allocation decisions because it accounts for scale — a large project with a lower IRR can create more value than a small project with a higher IRR.
What is a hurdle rate and how does it relate to IRR?
The hurdle rate is the minimum required return (also called the required rate of return or cost of capital). The decision rule is: Accept if IRR ≥ hurdle rate; Reject if IRR < hurdle rate. The hurdle rate should reflect the risk of the project — riskier projects demand higher hurdle rates.
What is Modified IRR (MIRR)?
MIRR addresses a key IRR flaw: IRR assumes intermediate cash flows are reinvested at the IRR itself, which is often unrealistic. MIRR uses a separate reinvestment rate (for positive cash flows) and a finance rate (for the initial outlay). Formula: MIRR = (FV of positive CFs at reinvestment rate / PV of negative CFs at finance rate)^(1/n) − 1.
Can IRR be negative?
Yes. A negative IRR means the investment loses money in present value terms. For example, if you invest $100,000 and receive back only $80,000 in total over 5 years, the IRR is negative. Negative IRR is distinct from simply earning less than the hurdle rate — it means total returns are less than total outflows.
What are the limitations of IRR?
Key IRR limitations: (1) Multiple IRRs — if cash flows change sign more than once, there can be multiple valid IRRs; (2) Reinvestment assumption — assumes intermediate flows reinvest at the IRR, not a market rate; (3) Scale blindness — cannot compare projects of different sizes; (4) Timing — misses differences in cash flow timing that NPV captures.
How do you calculate IRR in Excel?
In Excel, use =IRR(values, [guess]) where values is the range of cash flows starting with the Year 0 outflow as a negative number, and guess is an optional starting estimate (default 0.1). For irregular time periods, use =XIRR(values, dates, [guess]). MIRR is available via =MIRR(values, finance_rate, reinvest_rate).
What is the difference between IRR and CAGR?
CAGR (Compound Annual Growth Rate) measures the return of a single lump-sum investment with a known start and end value. IRR is more general — it handles multiple cash flows at different times, including negative flows. For a simple investment with one initial outflow and one final inflow, IRR and CAGR give the same result.
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