💰 Financial
IRR Calculator
Calculate the Internal Rate of Return (IRR) for a series of cash flows. IRR finds the exact discount rate that makes the Net Present Value (NPV) equal to zero.
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Formula
0 = Σ [ C_t / (1 + IRR)^t ]C_t- Net cash flow during the period t
IRR- Internal Rate of Return
t- Time period
Example
Evaluating a Business Project
You invest $50,000 (Year 0) and receive $15,000, $20,000, and $25,000 in Years 1, 2, and 3.
- Initial cash flow (Year 0) = -$50,000.
- Positive cash flows: Year 1 = $15,000, Year 2 = $20,000, Year 3 = $25,000.
- The calculator uses an iterative mathematical method (Newton-Raphson) to find the rate.
- Result: The IRR is 8.95%. If your required rate of return is lower than this, the project is theoretically profitable.
Frequently Asked Questions
IRR is the standard metric used in corporate finance and private equity to evaluate the profitability of investments, projects, or business expansions that have irregular cash flows.
If a project's cash flows alternate between positive and negative multiple times (e.g., you have to invest more money in year 3), the math can result in multiple valid IRR percentages. In these cases, Modified Internal Rate of Return (MIRR) or NPV is a better metric.