IRR Calculator
Calculate the Internal Rate of Return (IRR) for investments with regular or irregular cash flows. The IRR is the discount rate that makes the net present value (NPV) of all cash flows equal to zero.
Result
IRR = 0% per year.
| Cumulative Withdrawals: | $0.00 |
|---|---|
| Total Return: | $0.00 |
| Gross Return: | 0% |
Result
IRR = 0% per year.
| Further Investments: | $0.00 |
|---|---|
| Investment Length: | 0 years |
| Total Return: | $0.00 |
| Gross Return: | 0% |
About IRR Calculator
The Internal Rate of Return (IRR) is a financial metric used to estimate the profitability of potential investments. It is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does and are often used in capital budgeting to compare the profitability of investments.
How to Calculate IRR
To calculate the IRR:
- Estimate all cash flows (both positive and negative) associated with the investment
- Set the NPV equation equal to zero and solve for the discount rate (IRR)
- Use trial and error or financial calculators/software to find the rate that makes NPV = 0
Why IRR Matters
IRR is useful because it provides a single number that summarizes the merits of a project. It can be compared to other investments or to the company's required rate of return to determine if the investment should be undertaken. Generally, if the IRR is greater than the cost of capital, the investment is considered good.
Limitations of IRR
While IRR is a popular metric, it has some limitations:
- It assumes that all cash flows are reinvested at the IRR rate, which may not be realistic
- It can produce multiple solutions for projects with alternating positive and negative cash flows
- It doesn't account for the scale of the project (a smaller project may have a higher IRR but lower total return)