IRR Calculator
Calculate Internal Rate of Return for investment decisions.
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Periodic (Equal Intervals)Investment Summary
IRR vs Hurdle Rate
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What is IRR?
Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value of all cash flows equal to zero. It tells you the annualized effective compounded return rate of an investment.
Unlike simple ROI, IRR accounts for the time value of money—getting $1000 today is worth more than $1000 in 5 years. This makes IRR ideal for comparing investments with different timelines.
Understanding IRR Analysis
IRR Calculation
IRR is the rate where NPV = 0. Higher IRR means better returns. Our calculator uses Newton-Raphson method for accurate results.
Hurdle Rate
Your minimum required return. If IRR exceeds hurdle rate, the investment creates value. Common hurdle rates: 8-15% for real estate, 20%+ for startups.
NPV at Hurdle
NPV discounted at your hurdle rate. Positive NPV = good investment at your required return. Negative = doesn't meet requirements.
Payback & Multiple
Payback shows time to recover investment. Multiple (2x, 3x) shows total return vs investment—popular in VC and PE.
All Features
Frequently Asked Questions
What is Internal Rate of Return (IRR)?
IRR is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. It represents the annualized effective compounded return rate. Unlike simple ROI, IRR accounts for the time value of money.
What is a good IRR?
It depends on the investment type and risk. Real estate typically expects 15-20% IRR, venture capital 25%+, and low-risk bonds 3-5%. Generally, IRR should exceed your hurdle rate (cost of capital) to be worthwhile.
What is hurdle rate?
The hurdle rate is the minimum acceptable rate of return for an investment. It's often set at the company's cost of capital or an investor's required return. If IRR exceeds hurdle rate, the investment adds value.
IRR vs ROI: What's the difference?
ROI measures total return as a percentage of investment (e.g., 50% gain). IRR measures annualized return accounting for when cash flows occur. $100 that returns $150 in 1 year has 50% IRR, but if it takes 5 years, IRR is about 8.4%. IRR is more accurate for comparing investments with different time frames.
When should I use XIRR instead of IRR?
Use IRR for regular, periodic cash flows (monthly SIP, yearly returns). Use XIRR for irregular dates (investment on Jan 5, return on March 12, etc.). XIRR is Excel's function for irregular cash flows; our XIRR Calculator handles this.
Can IRR be negative?
Yes, negative IRR means the investment is losing money. If total returns are less than total investment, IRR will be negative. For example, investing $100,000 and getting back only $80,000 over 5 years yields negative IRR.
What is NPV and how does it relate to IRR?
NPV (Net Present Value) is the sum of all cash flows discounted at a specific rate. At the IRR discount rate, NPV equals zero. If NPV at your hurdle rate is positive, the investment adds value at your required return.
What is payback period?
Payback period is how long it takes to recover your initial investment from cash flows. Shorter payback means lower risk. Our calculator shows when cumulative returns equal initial investment.
What is multiple on investment?
Multiple on Investment (MOI) is total returns divided by total investment. 2x means you got back twice what you invested. While ROI says +100%, MOI says 2x. It's popular in private equity and venture capital.
How is IRR calculated?
IRR is calculated using iterative methods like Newton-Raphson. The formula finds the rate (r) where: NPV = CF₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + ... = 0. There's no direct formula; it requires trial and error, which our calculator handles automatically.