What is IRR?
The internal rate of return (IRR) is the yearly return that makes the net present value of all cash flows equal to zero. In plain terms, it is the interest rate the investment effectively pays you, taking into account when each dollar goes out and comes back.
Enter the initial investment and the cash you expect each year. Use a negative number for any year when you must put in more money. The calculator finds the IRR and also shows the net present value (NPV) at the discount rate you choose.
How to use IRR and NPV
- NPV above zero – the investment earns more than your required return (the discount rate).
- IRR above your required return – the same conclusion, stated as a percentage.
- Comparing projects – a higher IRR is not always better if the projects differ a lot in size or length; NPV shows which adds more dollars.
Frequently asked questions
Why is there no IRR for my cash flows?
If the total cash you get back never covers the investment, or all flows have the same sign, no interest rate can make NPV zero.
Can there be more than one IRR?
Yes. When cash flows switch between positive and negative more than once, several rates can make NPV zero. Rely on NPV in that case.
Is IRR the same as the Excel IRR function?
Yes. This calculator uses the same yearly-period definition as the IRR function in Excel and Google Sheets.