IRR Calculator

Internal Rate of Return (IRR) Calculation

Internal rate of return is one of most used measures for evaluating an investment. An investment with higher internal rate of return is considered as more profitable than investment with lower internal rate of return. This free online tool helps you to calculate IRR, it also generates a dynamic chart to demonstrate the relationship between NPV and discount rate.

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Example 1  |  Example 2  |  Example 3
Batch data entry (enter or paste your data in below box)
Year Cash-In ($) Cash-Out/
Investment ($, minus)
Net Cash Flow ($)
{{$index + 1}}
Total:

IRR result and chart

Internal rate of return (IRR) is


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Using the internal rate of reutrn (IRR) calculator

  • Internal Rate of Return (IRR) - IRR is the rate to make NPV equal to zero in an investment.
  • Initial Investment - Initial investment on the first year.
  • Cash-In - Annual cash in-flows.
  • Cash-Out - Annual cash out-flows.
  • Net Cash Flow - Cash-in minus cash-out.

What is IRR (internal rate of return)

IRR is the rate of return that makes the NPV (net present value) equal to zero, IRR is also called effective interest rate, or rate of return. It is used to evaluate an investment or project. Typically the higher the IRR, the more possibility to undertake the project.

How to calculate IRR?

It is almost impossible to talk about IRR without mentioning NPV. NPV formula is as below:
net present value (NPV) calculation formula
Since IRR is the rate to make NPV=0, we get the below functions:
internal rate of return (IRR) calculation formula
or
PV of benefits - PV of costs = 0

i is IRR, as the only unknown, it can be solved by using numerical or graphical analysis techniques.

Let's see the example:
An $85,000 investment returned $20,000 per year over a 5-year lifespan, what is the rate of return on the investment?
Solution:
20000/(1+i) + 20000/(1+i)^2 + 20000/(1+i)^3 + 20000/(1+i)^4 + 20000/(1+i)^5 = 85000
IRR is 5.68%.

IRR vs NPV

IRR is a rate, a percentage, while NPV is an absolute value. IRR is usually used to calculate the profitability of an investment or a project. If the IRR is greater than the cost of capital, the investment or project may be accepted. Otherwise, it should be rejected. NPV is used to measure the total value that an investment will bring in during a given period. If NPV is greater than zero, the investment is usually considered to be acceptable.

Calculate IRR in Microsoft Excel

If you don't have internet access or feel more comfortable to work with Microsoft Excel, this tutorial video will teach you how to do it using Excel.