IRR Calculator
Calculate the Internal Rate of Return (IRR) for your investments. Evaluate project profitability and compare investment opportunities.
What is IRR?
Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. It represents the annual growth rate of an investment. IRR is particularly useful for comparing investments with different cash flow patterns and time horizons.
IRR Interpretation: Higher IRR = Better investment. If IRR > Required return, the investment is worthwhile. If IRR < Required return, reject the investment.
When to Use IRR
- Project Evaluation: Compare multiple projects with different cash flows
- Real Estate: Evaluate property investment returns including cash flows
- Business Investments: Compare startup investments with varying returns
- Bond Analysis: Calculate yield to maturity
- Capital Budgeting: Decide which projects to fund
IRR Example
Project: Invest ₹1,00,000 today. Receive ₹30,000/year for 5 years.
This project has an IRR of approximately 7.93%, meaning you earn 7.93% annually on your investment.
IRR vs. NPV
- NPV: Absolute dollar value of investment worth at a given discount rate
- IRR: Discount rate at which NPV = 0. Percentage return on investment
- Use Together: Calculate NPV using IRR as discount rate to verify
Calculate IRR
Results
IRR Interpretation: This investment has an internal rate of return of 7.93%, meaning you earn approximately 7.93% annually. If your required return is less than 7.93%, this is a good investment.
Understanding IRR
Internal Rate of Return explained
Know IRR Definition
IRR is the discount rate that makes NPV = 0 for all cash flows
List Cash Flows
Initial investment (negative) and periodic returns (positive)
Use IRR Formula
Complex iterative calculation, best done with calculator
Interpret Result
Higher IRR = Better investment. Compare against required return
Compare Investments
Choose project with highest IRR if IRR > Required return
Consider Limitations
IRR assumes reinvestment at same rate and doesn't account for scale