SuperCalX

IRR Calculator

Calculate Internal Rate of Return for investment projects and compare against required returns for investment decisions.
Calculator
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Analysis
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How to Use

Step-by-step instructions
  1. 1Enter the initial investment amount (as positive number)
  2. 2Input expected cash flows for each year (Years 1-5)
  3. 3Set your required rate of return (hurdle rate)
  4. 4Review the IRR and compare it to your required return
  5. 5If IRR > required return, the investment is profitable

Internal Rate of Return (IRR)

IRR is the discount rate that makes the net present value of all cash flows equal to zero. It represents the expected annual rate of growth an investment will generate.
NPV = Σ [CFt ÷ (1 + IRR)^t] - Initial Investment = 0

Variables:

CFtCash flow in year t
IRRInternal rate of return (solved for)
tTime period (year)
NPVNet Present Value

Example

Investment Project Example

Inputs:

Initial Investment:$100,000
Cash Flows:$30k, $35k, $40k, $45k, $50k
Required Return:12%

Steps:

  1. 1.Set up equation: 0 = -$100,000 + $30,000/(1+IRR) + $35,000/(1+IRR)² + ...
  2. 2.Solve iteratively using Newton-Raphson method
  3. 3.IRR ≈ 28.6%
  4. 4.Compare IRR (28.6%) vs Required (12%)
  5. 5.Decision: Accept project (IRR > required return)
Result:
IRR of 28.6% exceeds 12% hurdle rate - highly profitable investment

Frequently Asked Questions

What's a good IRR?

IRR should exceed your required return (hurdle rate). Typical hurdle rates: 8-12% for stable businesses, 15-25% for growth ventures, 25%+ for high-risk investments. Compare IRR to your cost of capital.

IRR vs NPV - which is better?

Both are important. NPV shows absolute dollar value created, while IRR shows percentage return. Use NPV for choosing between mutually exclusive projects. IRR is better for comparing investment efficiency.

Can IRR be misleading?

Yes, for unconventional cash flows (multiple sign changes), there may be multiple IRRs. Also, IRR assumes cash flows are reinvested at the IRR rate, which may not be realistic. Always use alongside NPV.