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IRR Calculator
Calculate Internal Rate of Return for investment projects. Analyze cash flows, NPV, and make accept/reject decisions.
Currency
Initial Investment
Period 0 - the upfront investment cost
Cash Flows
$
$
$
Comparison Rate
Used for NPV comparison and accept/reject decision
Internal Rate of Return
8.90%
Converged in 4 iterations
Profitability Index
1.00
Value creating
NPV at 10%
$-210.37
Negative - destroys value
Reject Investment
IRR (8.90%) below hurdle rate (10.00%)
Cash Flow Timeline
P0
$-10,000.00
P1
+$3,000.00
P2
+$4,000.00
P3
+$5,000.00
Outflow
Inflow
Summary
Total Outflows
-$10,000.00
Total Inflows
+$12,000.00
Net Cash
$2,000.00
Present Value Schedule (at IRR)
| Period | Cash Flow | Discount Factor | Present Value | Cumulative PV |
|---|---|---|---|---|
| 0 | $-10,000.00 | 1.0000 | $-10,000.00 | $-10,000.00 |
| 1 | $3,000.00 | 1.0890 | $2,754.91 | $-7,245.09 |
| 2 | $4,000.00 | 1.1858 | $3,373.13 | $-3,871.95 |
| 3 | $5,000.00 | 1.2913 | $3,871.95 | $0.00 |
Understanding Internal Rate of Return
What is IRR?
IRR is the discount rate that makes the Net Present Value (NPV) equal to zero. It represents the effective annualized rate of return on an investment.
0 = CF0 + CF1/(1+IRR) + CF2/(1+IRR)^2 + ...
This equation has no closed-form solution and must be solved numerically using iterative methods like Newton-Raphson.
Decision Rules
- Accept if: IRR exceeds your required rate of return (hurdle rate)
- Reject if: IRR is below your hurdle rate
- Multiple IRRs: When cash flows change sign more than once, multiple IRRs may exist. Use NPV or MIRR instead.
- Profitability Index: PI greater than 1.0 indicates value creation. The higher the better.