Internal Rate of Return - IRR

A primary measure of an investment's worth based on yield. The internal rate of return (IRR) is the break-even interest rate which equals the Net Present Worth (NPW) of a project's cash flows. IRR is calculated by finding the discount rate that makes the present value of all cash flows equal to zero.

Internal Rate of Return Calculator

The IRR can be expressed as:

P(irr) = F₀/(1+irr)⁰ + F₁/(1+irr)¹ + F₂/(1+irr)² + ... + Fₙ/(1+irr)ⁿ = 0

Where:

  • F₀..ₙ = Cash flow in period 0 to n
    • Positive values = cash flow in (money received)
    • Negative values = cash flow out (money spent)
  • irr = Internal Rate of Return

Enter your cash flows below. Use negative values for money spent and positive values for money received.

Calculator

Inputs

Results

Net Present Value at MARR-- currency
Total Cash Flow-- currency
IRR Assessment--

How to Use:

  1. Enter Cash Flows: Input your project's cash flows for each year

    • Initial investment (typically negative): Year 0
    • Subsequent returns (positive or negative): Year 1-5

  2. Set MARR: Enter your Minimum Attractive Rate of Return (required rate)

  3. Review Results:

    • NPV at MARR: If positive, the project's IRR exceeds MARR (acceptable)
    • If negative, the project's IRR is below MARR (not acceptable)
    • Total Cash Flow: Sum of all cash flows

Key Concepts:

  • IRR: The discount rate that makes NPV = 0
  • MARR: The minimum acceptable return for investment decisions
  • Decision Rule: If IRR ≥ MARR, the project is acceptable