IRR Calculator

Internal Rate of Return (IRR) is the discount rate that makes Net Present Value of cash flows equal zero. It's the annualised rate of return on an investment with multiple cash flows. 100,000 investment generating 15,000 annually for 10 years plus 100,000 terminal value: IRR ≈ 18%. Higher IRR = better project (assuming similar risk).

Example: 100,000 invested today, 20,000 annual cash flow for 5 years, 80,000 final sale. IRR ≈ 13.5%. Compare against your hurdle rate (required return based on risk). If hurdle is 10%, accept (positive NPV). If hurdle is 15%, reject. Most VCs target 25-35% IRR on individual investments to deliver 15-20% fund returns after losses.

IRR vs simple return: simple return ignores time value of money. 100k → 200k over 10 years = 100% total return but only 7.2% IRR (compound annual). IRR weakness: assumes reinvestment at IRR rate (often unrealistic). For comparing projects of different sizes, also calculate NPV. For unconventional cash flows (multiple sign changes), IRR can have multiple solutions - use Modified IRR (MIRR) instead.

A worked example

Try the defaults: initial investment of 100,000, annual cash flow of 15,000, years of 10 years, terminal value of 100,000. The tool returns 15.00%. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.

What moves the number most

The result responds to Initial Investment, Annual Cash Flow, Years, and Terminal Value. Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.

The formula behind this

IRR is the discount rate where NPV = 0. Calculated using bisection method. Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.

Where this fits in planning

This is a "what-if" tool, not a forecast. Use it to test ideas before committing: what happens if the rate is 2% lower than hoped, what happens if you add five more years. The value is in the scenarios you run, not the single answer you get from the defaults.

What this doesn't capture

Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. The number represents one scenario rather than a forecast.