The internal rate of return (IRR) is the discount rate at which a project's net present value equals zero. If IRR exceeds your required return (hurdle rate or WACC), the project is theoretically acceptable. IRR is widely used in private equity, real estate, and corporate finance — but it has limitations with non-conventional cash flows and scale differences.
How to use this calculator
- Enter cash flows in chronological order, comma-separated. Start with the initial investment as a negative number.
- Optionally adjust the initial guess if the solver struggles (default 10%).
- Review the IRR percentage and compare it to your hurdle rate or WACC.
- Cross-check with the NPV calculator at your required return — IRR alone can be misleading for large vs. small projects.
Formula
IRR is the rate (r) that satisfies: 0 = Σ [CF_t / (1 + r)^t]. There is no closed-form solution for most cash flow patterns, so this calculator uses the Newton-Raphson iterative method starting from your guess. Multiple IRRs can exist when cash flows change sign more than once.
Example
Cash flows of −$100,000, $30,000, $40,000, $50,000, and $60,000 yield an IRR above 10%. If your hurdle rate is 10%, the project clears the return threshold — confirm with NPV at your exact cost of capital.
Frequently asked questions
What is a good IRR?
IRR must exceed your cost of capital to create value. Private equity targets often exceed 20%; corporate hurdle rates typically range 8–15% depending on risk. Compare IRR to WACC, not to arbitrary benchmarks.
Can IRR be negative?
Yes. A negative IRR means the project loses money even at a 0% discount rate — the total inflows do not recover the initial investment.
What are multiple IRRs?
When cash flows switch between positive and negative more than once (e.g., large remediation costs mid-project), multiple rates can satisfy NPV = 0. In these cases, use NPV or modified IRR (MIRR) instead.
Why might IRR and NPV disagree on ranking?
IRR assumes reinvestment at the IRR itself, which may be unrealistic. NPV assumes reinvestment at the discount rate. For mutually exclusive projects of different scale, NPV is the better decision criterion.