IRR Calculator

The IRR (Internal Rate of Return) calculator analyzes a series of cash flows and finds the discount rate that makes the investment break even in present value terms.

1. Enter the initial investment as a positive number (the calculator treats it as negative cash flow at Year 0).
2. Enter annual cash flows for each year of the investment. Positive numbers are inflows (revenue, savings). Negative numbers are additional outflows (maintenance, capital expenditures).
3. Add or remove years using the buttons. Up to 10 years are supported.

The cumulative balance column shows when the investment turns cash-flow positive. The NPV table shows whether the investment creates value at your required rate of return.

Net Present Value (NPV):

NPV = -Investment + CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CFn/(1+r)^n

IRR is the value of r that makes NPV = 0. There is no closed-form solution; it is found numerically.

This calculator uses a bisection method: it tries discount rates between -99.99% and 10,000% and narrows in on the rate where NPV changes sign. The calculation converges to within $0.01 accuracy.

Example: $100,000 investment, $25,000/year for 5 years. IRR = 7.93%. This means the investment earns a 7.93% annual return. If your required return (hurdle rate) is 8%, this investment does not quite clear the bar (NPV at 8% is slightly negative).

Decision rule:

• If IRR is greater than your cost of capital or hurdle rate, accept the investment.
• If NPV is positive at your required rate, accept the investment.
• Both criteria usually agree, but NPV is generally preferred when comparing mutually exclusive investments of different sizes.