How to use the IRR Calculator
- Enter the initial investment as a negative value at period zero.
- Enter each subsequent period's net cash flow, positive or negative.
- Read the IRR and compare it against your required rate of return.
- Cross-check with NPV, which is the more reliable measure when choosing between projects.
How the calculation works
IRR is the rate r that makes the net present value of all cash flows equal zero: Σ CFₜ / (1 + r)ᵗ = 0. There is no closed-form solution beyond simple cases, so it is found by iteration — the calculator narrows the rate until the NPV crosses zero. Any project whose IRR exceeds the cost of capital adds value at that hurdle.
Two caveats matter. IRR implicitly assumes interim cash flows are reinvested at the IRR itself, which overstates returns on unusually high-IRR projects; MIRR exists to correct that. And when a cash-flow series changes sign more than once — an investment requiring later reinvestment, say — there can be multiple mathematically valid IRRs, at which point the figure stops being meaningful and NPV should decide.
Solve for r: Σ CFₜ / (1 + r)ᵗ = 0, for t = 0 to nSource: Standard discounted cash flow analysis; multiple-IRR and reinvestment-assumption limitations per corporate finance texts.
Worked example
An equipment purchase: −85,000 now, then 24,000, 31,000, 33,000 and 29,000 over four years.
- Total undiscounted inflow = 117,000 against 85,000 out.
- At 12%: NPV ≈ +3,180, so the true rate is higher.
- At 15%: NPV ≈ −2,410, so it lies between.
- Iterating converges near 13.7%.
IRR ≈ 13.7%. Against a 9% cost of capital the project clears the hurdle with a reasonable margin.
Frequently asked questions
What IRR is good enough?+
Any IRR above your cost of capital adds value, but most investors want a margin above it to compensate for estimate error and risk.
Why does IRR sometimes disagree with NPV?+
IRR measures rate while NPV measures absolute value added. A small project can post a higher IRR than a large one that creates far more value — when they conflict, follow NPV.
Can a project have more than one IRR?+
Yes, when cash flows switch sign more than once. In that case the IRR is ambiguous and you should rely on NPV instead.
What is MIRR?+
A modified version that discounts outflows at your financing rate and compounds inflows at a realistic reinvestment rate, avoiding IRR's optimistic reinvestment assumption.
Last reviewed August 31, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.