Internal Rate of Return (IRR) Calculator
Solve for the discount rate that zeroes out a project’s NPV — the internal rate of return, found by iteration.
How it works
Find r such that Σ CFₜ ÷ (1 + r)^t = 0 · solved by bisection on r
The internal rate of return is the single discount rate that makes a project’s net present value exactly zero — effectively the annualised return the cash flows themselves imply. There is no closed-form solution, so it is found numerically: this calculator brackets a sign change in NPV and halves the interval (bisection) until the rate settles. Compare the IRR to your hurdle rate — accept when the IRR is higher, reject when it is lower.
Worked example
For an outlay of $1,000 followed by $300, $420, $680 and $800, the rate that discounts those inflows back to exactly $1,000 is roughly 33.4%. Because that far exceeds a typical 10% hurdle rate, the project is attractive — and indeed its NPV at 10% is strongly positive (about $677).
Frequently asked questions
How is IRR calculated without a formula?
There is no algebraic solution for most cash-flow series, so software iterates: it tries rates until NPV is zero. This tool uses bisection, repeatedly halving a bracket that contains the rate until it converges.
Why might IRR fail or be misleading?
Cash flows that switch sign more than once can produce multiple IRRs or none at all. When that happens, rely on NPV instead, which always gives a single, unambiguous answer.
What is a good IRR?
Any IRR above your cost of capital or required return creates value. There is no universal threshold — a 12% IRR is excellent against an 8% hurdle but poor against a 20% one.
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Educational estimate, not investment advice.