IRR Calculator
Find the annual rate that makes a conventional project’s net present value zero.
Result
Annual internal rate of return: 14.09%Estimate
IRR does not measure project scale and assumes a conventional timeline. Compare it with NPV rather than treating the percentage as a recommendation.
- Total future benefits
- $26,000.00Estimate
- Gain before discounting
- $10,000.00Estimate
- Entered horizon
- 6
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Results are arithmetic estimates based on the assumptions you enter, not accounting, tax, investment or lending advice. Forecasts can be wrong and important decisions should be checked with a qualified adviser. Read the full disclaimer
How to use the IRR Calculator
- Enter the investment paid at time zero.
- Add one non-negative net cash benefit for each year, in order.
- Compare the resulting annual rate with NPV and the assumptions behind the forecast.
The discount rate at break-even
IRR solves the NPV equation backwards. Instead of supplying a discount rate and calculating NPV, it finds the annual rate that makes discounted benefits equal the investment paid now.
0 = −initial investment + Σ cash benefit in year t ÷ (1 + IRR)^tThere is no algebraic shortcut for an arbitrary list of yearly benefits. The calculator brackets the answer and repeatedly halves the interval until both the rate and the remaining NPV difference are negligible. That avoids a starting guess deciding which answer appears.
Why the cash-flow shape is restricted
An initial negative cash flow followed only by non-negative benefits has one economically meaningful IRR. If a project later turns negative again—for example, because of a large closure cost—the equation can cross zero several times. Showing one of those roots as “the IRR” would hide the ambiguity.
Use NPV for a project that needs a specific required return. IRR is a percentage and can make a small project look stronger than a much larger project that creates more value in money terms.
With your numbers
- The solver finds the annual rate where discounted benefits equal $16,000.00
- IRR = 14.0855% across 6 annual periods
- Before discounting, benefits total $26,000.00 and exceed the investment by $10,000.00
Quick reference
IRR does not measure project scale and assumes a conventional timeline. Compare it with NPV rather than treating the percentage as a recommendation.
| Example | Annual internal rate of return |
|---|---|
| Six-year documented project | 14.09% |
| One-year 20% return | 20% |
| One-year negative return | -10% |
| Three equal annual benefits | 9.7% |
| Large five-year project | 13.45% |
| Slow four-year recovery | 3.15% |
Common questions about the IRR Calculator
- What does IRR mean?
- It is the annual rate at which the present value of the entered benefits exactly equals the initial investment, making NPV zero.
- Why can I not enter a later negative cash flow?
- Cash flows that change sign more than once can have multiple IRRs or none. This calculator accepts conventional projects so it can report one meaningful root.
- Is a higher IRR always better?
- No. IRR does not preserve project scale, and the forecast may be wrong. Compare projects using NPV at a required return as well.