IRR Calculator
Calculate Internal Rate of Return (IRR) for investment projects and business decisions.
Enter Cash Flows
IRR Results
Decision rule: Accept project if IRR > your required rate of return (hurdle rate).
Understanding IRR
IRR is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. It represents the annual return rate of an investment.
odede>0 = CF₀ + CF₁/(1+IRR) + CF₂/(1+IRR)² + ... + CFₙ/(1+IRR)ⁿ
Decision criteria:
• IRR > Required return: Accept project
• IRR < Required return: Reject project
• IRR = Required return: Indifferent
Example:
Initial investment: -NPR 10 lakh
Year 1-5 returns: NPR 3 lakh each
If IRR = 15% and your required return is 12%, accept the project.
Limitations: IRR assumes reinvestment at IRR rate, which may not be realistic. Use alongside NPV for better decisions.
FAQs
What is a good IRR?
Depends on industry and risk. Generally: 15-20% is good for business projects, 25%+ is excellent. Compare with your cost of capital.
IRR vs ROI - what's the difference?
ROI is simple profit percentage. IRR considers time value of money and provides annual return rate. IRR is more accurate for multi-year projects.
Can IRR be negative?
Yes, negative IRR means the project loses money. It's better to keep money in bank than invest in such projects.
What if I get multiple IRR values?
This happens with non-conventional cash flows (multiple sign changes). Use NPV method instead or Modified IRR (MIRR).
How do I calculate IRR manually?
Trial and error or financial calculator. Test different rates until NPV = 0. This calculator uses iterative approximation.