Free online IRR calculator to compute a project’s internal rate of return using initial investment and expected future cash flows.
(Multiple cash flows separated by comma):
How to Use the IRR Calculator
To use the IRR calculator, simply input the following:
- Initial Investment – The upfront cost of the project
- Cash Flows – The expected future cash flows for each period, separated by commas
The calculator will output the IRR – the internal rate of return.
What is the Internal Rate of Return (IRR)?
IRR stands for Internal Rate of Return. It is the discount rate that causes the net present value (NPV) of a project to equal zero. In other words, it is the expected compound annual rate of return for the project.
IRR = Discount rate such that NPV = 0
A higher IRR indicates a more desirable project.
Understanding Net Present Value (NPV)
NPV stands for Net Present Value. It is the current value of expected future cash flows minus the initial investment. NPV accounts for the time value of money by discounting future cash flows to present value using a discount rate.
NPV = Present Value of Future Cash Flows – Initial Investment
A positive NPV indicates a profitable project.
Use our free NPV calculator.
IRR vs NPV: The Relationship
IRR and NPV help assess the viability of a project but in different ways:
- IRR measures the expected rate of return as a percentage
- NPV measures the net profit in dollar terms after discounting cash flows
IRR doesn’t consider investment size, while NPV does. For comparing projects of different sizes, NPV is better.
Use our free NPV IRR Calculator.
Project Appraisal Using IRR Method
The IRR should exceed the minimum required rate of return for a project to be considered profitable. When this condition is met, the project is likely to be a good investment.
Example of IRR Calculation
An energy efficiency project requires an initial investment of $100,000. It is expected to produce annual savings of $40,000 for each of the next 5 years. The minimum required rate of return is 10%.
The IRR is 28.649%, which exceeds the minimum required rate of return of 10%, so this project satisfies the IRR rule and can be accepted.