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Internal Rate of Return (IRR) Calculator

Find the internal rate of return for an investment with custom cash flows.

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IRR: –

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    Overview

    The Internal Rate of Return (IRR) Calculator helps you estimate the return rate at which the Net Present Value (NPV) of a series of future cash flows becomes zero. It’s a critical financial tool for comparing the profitability of investments or projects, and it’s widely used in corporate finance, venture capital, and startup analysis.

    By entering an initial investment and a series of cash inflows, this calculator will iteratively compute the IRR and visualize the breakeven point on a graph where NPV = 0.

    Formula & Methodology

    The IRR is the discount rate (r) that satisfies the following equation:

    NPV = Σ [ Rt / (1 + r)t ] - C0 = 0

    • C0: Initial investment (cash outflow)
    • Rt: Net cash inflow during period t
    • r: Internal rate of return
    • t: Period number (e.g., year)

    The IRR is typically found using iterative numerical methods like the bisection or Newton-Raphson method since there's no closed-form solution.

    Examples

    • Investment: $2,000
      Cash Flows: $500, $800, $1,000
      IRR ≈ 11.8%
    • Investment: €10,000
      Cash Flows: €2,000 per year for 7 years
      IRR ≈ 7.93%

    Use Cases

    • Compare investment opportunities or business projects
    • Evaluate venture capital or private equity returns
    • Analyze property or rental income feasibility
    • Determine break-even rate of return for startup scenarios

    FAQ

    What is a “good” IRR?

    It depends on your required rate of return. Typically, a higher IRR means a more profitable investment. Compare IRR against your cost of capital or alternative investment options.

    Can IRR be negative?

    Yes, if the investment doesn’t recover the initial cost, IRR may be negative, indicating a loss.

    What happens if there are multiple IRRs?

    Multiple IRRs can occur with unconventional cash flows (e.g., alternating signs). In such cases, IRR should be interpreted carefully, and the NPV profile should be reviewed.

    What is the difference between IRR and ROI?

    IRR considers the time value of money and shows a rate of return. ROI is simpler and just measures gain over investment without discounting future cash flows.