Free irr (internal rate of return) calculator
Enter an initial investment and annual cash flows — this IRR calculator finds the internal rate of return that zeroes your NPV and compares it to your hurdle rate, updated live, as you type.
On this page10 sections
IRR is an estimate. If cash flows change sign more than once, multiple IRRs may exist. Compare to your cost of capital.
Results are estimates. Consult a professional.
How the IRR calculator works
Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of all cash flows from a project equal to zero. Intuitively, it is the annualised return rate 'baked into' the project's cash flows. The decision rule is straightforward: accept the project if its IRR exceeds your hurdle rate (minimum required return or WACC); reject it if IRR falls short.
Because the equation has no closed-form algebraic solution, IRR is always computed numerically by trial-and-error iteration: try a rate, compute NPV, adjust the rate, and repeat until NPV converges to zero. When cash flows change sign more than once (e.g. an investment, revenues, then a large clean-up cost), there may be multiple valid IRRs — in those cases, use Modified IRR (MIRR) instead.
Corporate Finance Institute — Internal Rate of Return (IRR)Worked example: five-project capital allocation decision
A manufacturing firm has a 10% hurdle rate (its WACC). The capital budget committee is evaluating five proposals. Each has an initial outflow at Year 0 and three years of operating cash inflows (Years 1–3). IRR and NPV at 10% determine which projects to fund.
Sample project IRR and NPV comparison
The table below shows five illustrative projects with initial investment, three-year cash flows, IRR, NPV at a 10% discount rate, and the accept/reject verdict. Note that a higher IRR does not always correspond to a higher NPV — Project A has the highest IRR but not the highest NPV.
| Project | Investment | CF Y1/Y2/Y3 | IRR | NPV @10% | Verdict |
|---|---|---|---|---|---|
| A | $100,000 | $40k / $50k / $60k | 25.0% | +$22,700 | Accept |
| B | $200,000 | $60k / $80k / $120k | 15.3% | +$23,600 | Accept |
| C | $150,000 | $40k / $40k / $80k | 8.4% | −$8,400 | Reject |
| D | $50,000 | $20k / $20k / $20k | 9.7% | −$700 | Reject |
| E | $300,000 | $120k / $130k / $140k | 17.1% | +$49,000 | Accept |
Source: Brealey, Myers & Allen — Principles of Corporate Finance; CFI IRR reference examples
Tips for using IRR in capital decisions
IRR is one of the most widely used tools in capital budgeting, but it has well-documented limitations. Understanding when to trust it — and when to cross-check with NPV — is the hallmark of rigorous financial analysis.
- Use NPV to break ties between mutually exclusive projects — When choosing between two alternatives, IRR can mislead. A smaller project can have a higher IRR but destroy less value than a larger, lower-IRR project. NPV correctly measures total dollar value created.
- Watch for multiple IRRs — Any project where cash flows flip sign more than once (initial outflow → inflows → large terminal outflow) may produce multiple solutions. Use MIRR (Modified IRR), which assumes a single reinvestment rate, to avoid ambiguity.
- Set your hurdle rate before evaluating projects — Adjusting the hurdle rate after seeing IRR results introduces bias. Corporate hurdle rates typically range from 8–12% for established firms; PE/VC firms often require 15–25% to account for illiquidity and risk.
- Pair IRR with payback period for liquidity analysis — IRR says nothing about how fast you recover capital. Two projects with identical IRRs can have very different payback periods, which matters when capital is constrained or the business has near-term cash needs.
- Stress-test the cash-flow assumptions — IRR is only as reliable as the projected cash flows. Run a sensitivity analysis varying revenue by ±10–20% to see how quickly IRR drops below your hurdle rate under pessimistic scenarios.
Accuracy and limitations
This calculator uses iterative numerical methods (bisection / Newton-Raphson) to solve for IRR and will converge to a solution for conventional cash-flow series. For unconventional cash flows with multiple sign changes, the calculator may return one of several possible valid IRRs or indicate that a unique solution could not be found. In those cases, MIRR — which requires a specified reinvestment rate — is the appropriate tool.
This tool is for educational and informational purposes only and does not constitute financial, investment, or legal advice. Capital budgeting decisions involve strategic, operational, and market considerations far beyond any single metric. Typical hurdle rates and benchmarks cited here are general references, not recommendations. Consult a qualified financial analyst, investment banker, or CFO before making capital allocation decisions based on IRR or any other return metric.
IRR and capital budgeting terms defined
About this IRR calculator
This calculator runs entirely in your browser — nothing you enter is sent to any server.
Browse more in our business calculators, or explore the complete library on the free calculators page.