# IRR Calculator

Calculate the Internal Rate of Return (IRR) for any investment. Enter cash flows for up to 5 years to find the rate that makes NPV equal zero. Free tool.

## What this calculates

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.

## Inputs

- **Initial Investment** ($) — min 0 — The upfront cost (entered as a positive number).
- **Cash Flow Year 1** ($) — Expected net cash flow in year 1.
- **Cash Flow Year 2** ($) — Expected net cash flow in year 2.
- **Cash Flow Year 3** ($) — Expected net cash flow in year 3.
- **Cash Flow Year 4** ($) — Expected net cash flow in year 4.
- **Cash Flow Year 5** ($) — Expected net cash flow in year 5.

## Outputs

- **Internal Rate of Return (IRR)** — formatted as percentage — The discount rate that makes the NPV equal to zero.
- **NPV at 10% Discount Rate** — formatted as currency — The net present value calculated at a 10% discount rate for comparison.
- **Payback Period** — The number of years to recover the initial investment.
- **Recommendation** — formatted as text — Whether to accept or reject based on a 10% hurdle rate.

## Details

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.

## Frequently Asked Questions

**Q: What is IRR?**

A: IRR (Internal Rate of Return) is the annual rate of return at which an investment's net present value equals zero. It represents the investment's expected annualized return. If a project has an IRR of 15%, it means the cash flows are equivalent to earning 15% annually on your invested capital.

**Q: What is a good IRR?**

A: A good IRR depends on the risk of the investment and alternative opportunities. Generally, an IRR should exceed your cost of capital or hurdle rate. For typical corporate projects, an IRR above 10-15% is considered good. For venture capital or private equity, expected IRRs are often 20-30%+ due to higher risk. Real estate investments typically target 8-12% IRR.

**Q: Why is NPV sometimes preferred over IRR?**

A: NPV is preferred because it gives the actual dollar amount of value created, handles non-conventional cash flows (multiple sign changes) without producing multiple solutions, does not have the reinvestment rate assumption problem, and is additive (you can sum NPVs of multiple projects). IRR is useful as a complementary metric but should not be used in isolation.

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Source: https://vastcalc.com/calculators/finance/irr
Category: Finance
Last updated: 2026-04-21