IRR Calculator
Find the Internal Rate of Return for any investment with our free IRR calculator. Enter your initial investment and expected annual cash flows to determine the discount rate at which the investment breaks even, plus the payback period and NPV comparison.
The Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of all cash flows from an investment equals zero. In simpler terms, it is the annualized rate of return that the investment is expected to generate. If the IRR exceeds your required rate of return (hurdle rate), the investment is generally worth pursuing.
IRR is calculated using an iterative process (Newton's method) since there is no closed-form solution. The calculator starts with an estimate and refines it until it finds the rate where NPV converges to zero. This makes IRR useful as a single-number summary of an investment's attractiveness.
While IRR is widely used, it has limitations. It assumes that intermediate cash flows are reinvested at the IRR rate, which may be unrealistic for very high IRRs. It can also produce multiple solutions when cash flows change signs more than once. For these reasons, NPV is generally considered the more reliable metric, but IRR is valuable as a complementary measure that expresses return in percentage terms that are easy to compare.