Investing
IRR Calculator
IRR answers a question NPV cannot: not whether a project clears your hurdle, but what return it actually earns. It is the discount rate at which the investment exactly breaks even, expressed as an annual percentage you can compare with anything else.
Tested against worked examplesHow we verify
Internal rate of return: 15.24%
Internal rate of return
15.24%
The annual return implied by these cash flows.
- Total cash returned
- $15,000
- Invested
- $10,000
- Net gain
- $5,000
Undiscounted — IRR is what accounts for timing.
Compare scenariosTry three values of one input
| Upfront investment | |||
|---|---|---|---|
| Internal rate of return | 19.86% | 15.24%−4.62% | 11.32%−8.54% |
| Invested | $9,000 | $10,000+$1,000 | $11,000+$2,000 |
| Net gain | $6,000 | $5,000−$1,000 | $4,000−$2,000 |
Every other input stays at the value you set above — currently $10,000 for upfront investment. Differences are measured against the first column.
Saved scenariosSave this calculation
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How this calculator works
IRR is solved by bisection: we search for the rate where the present value of the level annual cash flows equals the upfront investment. Two hundred iterations between 0% and 100% converge far past the precision the display needs, so the answer is stable rather than an approximation formula.
Cash flows are assumed equal, annual, and at year end, with no terminal or salvage value. If total cash returned never exceeds the investment, no positive IRR exists and the calculator says so instead of reporting a misleading number.
What this assumes
- Solved numerically from the cash flows you enter; unusual sign patterns can produce multiple valid answers.
- It assumes interim cash flows are reinvested at the IRR itself, which is optimistic when the IRR is high.
- Timing is treated as entered — IRR is highly sensitive to when cash moves, not just how much.
What changes this number
- Timing of cash flows
- Earlier returns raise the IRR sharply. Two projects with identical totals can differ enormously.
- The reinvestment assumption
- The main criticism of IRR, and the reason NPV is often preferred for comparing projects.
- Sign changes
- More than one reversal can yield multiple mathematically valid rates.
A worked example
Take the $10k returning $3k for 5 years scenario. These figures are produced by the calculator above, not written alongside it, so they always match what the tool returns.
What you enter
- Upfront investment
- $10,000
- Annual cash flow returned
- $3,000
- Years of cash flow
- 5 years
What it returns
- Internal rate of return
- 15.24%
- Total cash returned
- $15,000
- Invested
- $10,000
- Net gain
- $5,000
Try an example
Frequently asked questions
What is IRR?
The internal rate of return is the annual growth rate an investment implies. Formally it is the discount rate that makes net present value zero — the point where future cash flows exactly repay the upfront cost. If your alternative earns less than the IRR, the project adds value.
IRR or NPV — which should I use?
NPV for the decision, IRR for the conversation. NPV tells you how many dollars of value a project adds at a rate you choose; IRR gives one comparable percentage but ignores scale, so a 40% return on $1,000 can look better than 12% on $500,000. Use both, and prefer NPV when they disagree.
Why does IRR assume reinvestment?
The maths implicitly assumes every cash flow you receive is reinvested at the IRR itself, which is optimistic for high-IRR projects. When that assumption looks unrealistic, the modified internal rate of return (MIRR) uses a separate, more honest reinvestment rate.
Does this handle uneven cash flows?
Not in this version — it solves for level annual amounts, which covers rentals, equipment, and most simple projects. Uneven flows need each year discounted separately; a spreadsheet's IRR function or a full financial model is the right tool there.
Related calculators
NPV Calculator
Calculate the net present value of an investment with level annual cash flows — whether the future returns, discounted to today, justify the upfront cost.
Payback Period Calculator
Find how long it takes to recoup an upfront investment from its annual cash flow — the simple payback period, in years and months.
ROI Calculator
Measure the return on any investment: total gain, total return (ROI), and the annualized return (CAGR) that lets you compare deals held for different lengths of time.
CAGR Calculator
Calculate the compound annual growth rate (CAGR) between a starting and ending value — the smoothed yearly return that makes any investment comparable.
Disclaimer: DayCents provides this calculator for educational purposes only. Results are estimates based on your inputs and the stated assumptions — they are not financial advice, a quote, or an offer of credit. Consult a qualified financial professional before making major money decisions.