What is IRR (Internal Rate of Return)?

IRR is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. It represents the annualized expected return on an investment. If IRR exceeds the hurdle rate (required return or cost of capital), the investment is generally considered profitable. Formula: NPV = Σ[CFt / (1+IRR)^t] = 0.

What is NPV and how does it relate to IRR?

NPV (Net Present Value) is the sum of all discounted cash flows at a specific discount rate. IRR is the specific rate at which NPV equals zero. If IRR > hurdle rate, NPV at the hurdle rate is positive (good investment). If IRR < hurdle rate, NPV is negative. Use both: NPV tells you the dollar value created; IRR tells you the percentage return.

MIRR (Modified Internal Rate of Return) addresses a key weakness of IRR — the unrealistic reinvestment assumption. Standard IRR assumes interim cash flows are reinvested at the IRR itself, which is often unrealistic. MIRR uses a separate reinvestment rate (typically the cost of capital) for positive cash flows and a finance rate for negative flows, giving a more realistic picture of project profitability.

What is a good IRR for an investment?

A good IRR depends on the risk and asset class. Real estate: 8-12% is typical, 15%+ is strong. Private equity: 20-30%+ is expected. Stocks: 10-15% CAGR is considered strong long-term. Corporate projects: any IRR above the company's weighted average cost of capital (WACC) — typically 8-12% for most companies — is positive. The key comparison is always IRR vs hurdle rate.

What is the payback period?

Payback period is the time it takes to recover the initial investment from cash inflows, without discounting. It's simple but ignores time value of money and cash flows after payback. The discounted payback period uses present values of cash flows, giving a more accurate picture. Shorter payback periods reduce risk exposure.

When can IRR give wrong answers?

IRR can be misleading in several situations: (1) Multiple IRRs — when cash flows change sign more than once, there can be multiple IRR values. (2) Mutually exclusive projects — a smaller project may have higher IRR but lower NPV than a larger one. (3) Unconventional cash flows — projects with large outflows late in the period may produce unreliable IRR. In these cases, use NPV and MIRR as primary decision criteria.

IRR Calculator – Internal Rate of Return, NPV & MIRR | PrimeCalculator

💹 IRR Calculator

IRR Calculator — Internal Rate of Return

Calculate IRR, NPV, MIRR, and payback period for any investment with irregular cash flows. See NPV profile curve and cash flow waterfall chart.

💹 IRR Solver

💰 NPV at Hurdle Rate

🔄 MIRR Calculator

⏱️ Payback Period

IRR Calculator

Enter cash flows · negative = outflow · positive = inflow

Rates

Hurdle Rate (required return)

MIRR Reinvest Rate

Cash Flows

Year 0 = initial investment (negative). Add inflows for each year.

Period Description Amount ($)

How IRR Works

IRR is the discount rate that makes NPV = 0. If IRR > hurdle rate (your required return), the investment creates value. If IRR < hurdle rate, you'd be better off investing at the hurdle rate.

NPV = 0

IRR Definition

> Hurdle

Accept Project

MIRR

Realistic Version

Newton–R

Solver Method

✅

Accept Investment

IRR exceeds your hurdle rate.

0% IRR

IRR

NPV @ Hurdle

MIRR

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Payback

📊 Cash Flow by Period

📈 NPV Profile — NPV at Different Discount Rates

💹 IRR vs NPV — Key Metrics

📊 IRR Analysis

IRR0%

MIRR0%

Hurdle Rate0%

Spread (IRR − Hurdle)0%

💰 NPV Analysis

NPV @ Hurdle Rate$0

Total Cash Inflows$0

Total Outflows$0

Payback Period—

📋 Cash Flow Detail

Period	Description	Cash Flow	PV @ Hurdle	PV @ IRR	Cumulative CF

IRR Formula and Calculation Method

IRR is the rate r that satisfies: NPV = Σ[CFt / (1+r)^t] = 0

Because this equation has no algebraic closed-form solution for multiple periods, our calculator uses Newton-Raphson iteration — the same method used by Excel's IRR function and financial calculators. Starting from an initial guess, it refines the rate until the NPV converges to zero within 12 decimal places of accuracy.

IRR vs NPV vs MIRR — When to Use Each

Metric	What It Tells You	Decision Rule	Limitation
IRR	Annualized % return of the investment	Accept if IRR > hurdle rate	May have multiple solutions; assumes reinvestment at IRR
NPV	Dollar value created above hurdle rate	Accept if NPV > 0	Doesn't show % return; depends on scale
MIRR	IRR with realistic reinvestment rate	Accept if MIRR > hurdle rate	Requires separate reinvestment rate assumption
Payback Period	Time to recover initial investment	Accept if payback < target period	Ignores time value of money and flows after payback

Real-World IRR Examples

Scenario	Cash Flows	IRR	Decision @ 10% Hurdle
Equipment Purchase	−$40K, +$10K, +$20K, +$30K	19.4%	✅ Accept (IRR > 10%)
Real Estate	−$100K, +$8K/yr × 5, +$120K in yr 5	~13.5%	✅ Accept
Poor Investment	−$50K, +$5K/yr × 5, +$30K in yr 5	~3.5%	❌ Reject (IRR < 10%)
Startup Investment	−$200K, −$50K yr 1, +$100K, +$200K, +$300K	~28%	✅ Strong Accept

Frequently Asked Questions

IRR (Internal Rate of Return) is the discount rate that makes NPV = 0. It's found numerically using Newton-Raphson or bisection methods since there's no algebraic solution. Formula: 0 = CF₀ + CF₁/(1+IRR) + CF₂/(1+IRR)² + ... + CFn/(1+IRR)^n. Our calculator iterates until convergence within 10⁻¹² precision.

NPV is the dollar value created at a specific discount rate (hurdle rate). IRR is the % return where NPV = 0. Both should align: if IRR > hurdle rate, NPV at that hurdle rate is positive. Use NPV to compare projects of different scales (a $1M project with 15% IRR may create more value than a $100K project with 25% IRR). Use IRR to communicate return as a percentage.

MIRR (Modified IRR) fixes a key IRR assumption: that interim cash flows are reinvested at the IRR itself (often unrealistically high). MIRR uses a separate reinvestment rate (typically equal to the hurdle rate or cost of capital) for positive cash flows. MIRR = [FV(positive flows at reinvest rate) / PV(negative flows at finance rate)]^(1/n) − 1. MIRR is always a unique value unlike regular IRR which can have multiple solutions.

Yes. Descartes' Rule of Signs states that the number of possible positive real IRR values equals the number of sign changes in the cash flow sequence. If cash flows go negative → positive → negative → positive, there could be up to 3 IRR values. In this case, IRR is unreliable and NPV (at the hurdle rate) should be the primary decision metric. Use MIRR as a single-valued alternative.

Good IRR targets vary by risk and asset class: Real estate core: 8-10%; Real estate value-add: 12-18%; Private equity: 20-30%+; Venture capital: 25-40%+; Public market equities: 10-15% CAGR; Corporate projects: > company's WACC (typically 8-12%). The key comparison is always IRR vs your specific hurdle rate — not absolute IRR numbers.