IRR Calculator
Enter your initial investment and up to 12 years of annual cash flows to calculate the Internal Rate of Return (IRR) - the annualised rate at which your investment breaks even on a present-value basis. You also get the Modified IRR (MIRR) with separate finance and reinvestment rates, the Net Present Value at any hurdle rate you choose, and a year-by-year breakdown table. Results update as you type.
What is IRR and why does it matter?
The Internal Rate of Return (IRR) is the annualised discount rate that makes the Net Present Value (NPV) of all future cash flows from an investment exactly equal to zero. In plain terms, it is the compound annual return you earn on every dollar you have invested in a project, taking into account the timing of each cash inflow and outflow. A higher IRR means the investment is more attractive. Most analysts compare IRR to a hurdle rate (the minimum acceptable return or cost of capital): if IRR exceeds the hurdle rate, the investment is destroying cost-of-capital and is worth pursuing; if it falls short, the investment should generally be rejected or redesigned. IRR is widely used in corporate capital budgeting, real estate, private equity, and personal finance to rank competing projects and screen investment opportunities.
How IRR is calculated
IRR cannot be solved with a closed-form algebraic formula - it is found by numerical iteration. The NPV equation is: NPV = CF0 + CF1/(1+r) + CF2/(1+r)^2 + ... + CFn/(1+r)^n, where CF0 is typically the initial outflow (negative), CF1 through CFn are the future cash flows, and r is the discount rate. Setting NPV to zero and solving for r gives the IRR. This calculator uses a bisection-plus-Newton-Raphson hybrid method that converges to the IRR in milliseconds. For the NPV calculation shown alongside, your chosen hurdle rate is used in place of r, and any positive result means the investment generates surplus value above your required return.
IRR vs. MIRR: which should you use?
Standard IRR implicitly assumes that every positive cash flow is reinvested at the IRR itself - an assumption that overstates returns when the IRR is unusually high, because few investors can actually reinvest at 30%, 40%, or higher in practice. The Modified Internal Rate of Return (MIRR) fixes this by separating two rates: a finance rate (the cost of borrowing, used to discount all negative cash flows to time zero) and a reinvestment rate (the rate at which positive cash flows are compounded forward to the end of the project). MIRR is almost always lower than IRR for high-return projects and is considered a more realistic and conservative measure. For capital budgeting decisions, both numbers are worth reviewing: IRR tells you the theoretical break-even rate, while MIRR tells you what you can realistically expect given how your surplus cash will be deployed.
Limitations of IRR and when to use NPV instead
IRR has well-known shortcomings. First, it ignores scale - a 50% IRR on a 1,000 investment is much less valuable than a 15% IRR on a 1,000,000 investment. Second, when cash flows change sign more than once (for example, a large decommissioning cost at the end), there may be multiple mathematically valid IRRs, making the result ambiguous. Third, IRR cannot rank mutually exclusive projects: the one with the higher IRR is not always the better choice when they differ in size or timing. For these reasons, capital allocation decisions should always check NPV alongside IRR - a positive NPV at the hurdle rate confirms that the investment adds value in absolute dollar terms, which IRR alone cannot tell you. The payback period shown here adds a liquidity perspective: how quickly does the investment return its cost?
IRR benchmarks by investment type
| Investment type | Typical IRR range | Risk level |
|---|---|---|
| Government bonds | 2% - 5% | Very low |
| Corporate bonds (investment grade) | 4% - 7% | Low |
| Blue-chip equities (long-run) | 8% - 12% | Medium |
| Real estate (commercial) | 8% - 15% | Medium |
| Private equity / buyouts | 15% - 25% | High |
| Venture capital (early stage) | 25% - 50%+ | Very high |
| Startup angel investment | 30% - 100%+ | Speculative |
Typical IRR expectations vary by asset class and risk level. These are general reference ranges.
Frequently asked questions
What is a good IRR?
There is no single universal answer because a "good" IRR depends entirely on the risk level and alternative uses of capital. As a rough reference: an IRR below 5% is typically below long-run inflation-adjusted equity returns; 8% to 12% is broadly in line with stock market historical averages; 15% to 25% is the typical target for private equity buyout funds; and 25% or higher is expected by venture capital investors to compensate for the high failure rate of early-stage companies. For corporate projects, the standard rule is that IRR must exceed the company's weighted average cost of capital (WACC) to create shareholder value.
What is the difference between IRR and ROI?
Return on Investment (ROI) is a simple percentage: net profit divided by initial cost, with no regard for when the cash flows arrive. IRR is a time-adjusted rate that accounts for the compounding effect of money across multiple periods. A project that doubles your money in one year has an IRR of 100%, while the same doubling spread over ten years has an IRR of about 7.2%. ROI treats both identically. Because IRR discounts future cash flows, it is a much more meaningful metric for multi-year investments.
Can IRR be negative?
Yes. A negative IRR means the investment loses money on a present-value basis: even without discounting, the total cash inflows are less than the total outflows. A negative IRR is a clear signal to reject the investment unless there are strategic or non-financial reasons to proceed.
Why can there be multiple IRRs?
By Descartes' rule of signs, a cash flow series can have as many positive real IRRs as there are sign changes in the sequence. A project that starts with a negative investment, generates positive returns for several years, then faces a large negative cost at the end (like decommissioning an oil rig or remediating a site) can produce two mathematically valid IRRs. In these cases, neither figure alone is reliable, and NPV at the actual hurdle rate is the more trustworthy decision tool.
What is the payback period and how does it differ from IRR?
The payback period is the number of years it takes for cumulative cash flows to turn positive, recovering the initial investment. Unlike IRR, it ignores the time value of money and completely ignores cash flows after the payback point. It is used as a quick liquidity screen - projects with shorter payback periods carry less risk of being stranded by early-stage capital needs - but it should always be used alongside IRR or NPV, not instead of them.