IRR Calculator

Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of a series of cash flows equals zero. In other words, it's the exact annualized return rate that an investment generates. If an investment's IRR exceeds your required rate of return (hurdle rate), the investment is considered acceptable. For example, an IRR of 15% means the investment is projected to return 15% per year — better than a 10% hurdle rate, worse than a 20% hurdle rate.

IRR is found by solving for r in the equation: 0 = Σ (CF_t / (1+r)^t). Because this equation has no closed-form solution, it's solved numerically using iteration methods like Newton-Raphson. Starting with an initial guess (typically 10%), the algorithm repeatedly refines the estimate until NPV is within a very small tolerance of zero. This calculator uses Newton-Raphson with up to 100 iterations and a tolerance of 1e-7 for high precision.

A good IRR depends on the context and your hurdle rate. For corporate projects, the hurdle rate is often the company's Weighted Average Cost of Capital (WACC), typically 8–15%. An IRR above the hurdle rate means the investment creates value. For real estate, an IRR above 10–15% is generally attractive. For private equity and venture capital, IRRs of 20–30% or more are targeted. Always compare IRR to an opportunity cost — what you could earn on a similarly risky alternative investment.

IRR has several important limitations. It assumes cash flows are reinvested at the IRR itself, which may be unrealistic for very high IRRs. It can produce multiple solutions when cash flows change sign more than once (non-conventional cash flows). It can be misleading when comparing projects of different sizes — a small project with 50% IRR might create less absolute value than a large project with 20% IRR. For these reasons, IRR should be used alongside NPV analysis rather than in isolation.

Both IRR and CAGR measure investment returns as annual rates, but they differ in scope. CAGR (Compound Annual Growth Rate) measures the growth rate between a single beginning value and ending value — it ignores the timing of cash flows. IRR accounts for all cash flows at their specific times, making it more accurate for investments with multiple inflows and outflows (like real estate or business projects). If you make an initial investment and receive only one final payout, IRR and CAGR will give the same result. For periodic cash flows, IRR is the appropriate measure.