Internal Rate of Return Calculator

By Anowar

Reviewed by Jasmine

This tool helps you calculate the profitability of investments based on the Internal Rate of Return (IRR), Net Present Value (NPV), Return on Investment (ROI), and Payback Period.

Advanced IRR Calculator

Initial Investment Value:
$0.00
Please enter a value between $0 and $1,000,000,000
Cash Flows
Please enter a value between $0 and $1,000,000,000
Please enter a value between $0 and $1,000,000,000
Please enter a value between $0 and $1,000,000,000

What Is IRR (Internal Rate of Return)?

The internal rate of return (IRR) is a way to measure how profitable an investment is. It is the rate at which the value of all the money you receive (cash inflows) is equal to the money you spend (cash outflows). Simply enter, it shows you how much your investment returns annually when it breaks even. However, for more calculations, you can visit the home page.

  • IRR is the discount rate that makes the NPV of all cash flows equal to zero
  • Investments with IRR higher than the cost of capital can be considered good investments
  • The cost of capital represents the baseline rate for the investment
  • IRR cannot always be calculated, for example, when there are no negative cash flows

Note: IRR should not be the only factor used to make a decision. Also consider other metrics like NPV and payback period.

IRR Calculations & Formulas

NPV = 0 = CF₀ + CF₁/(1+IRR)¹ + CF₂/(1+IRR)² + ... + CFₙ/(1+IRR)ⁿ

What the terms mean:

  • CF₀: Initial investment (usually a negative value).
  • CF₁, CF₂, etc.: Cash flows for each period.
  • n: Total number of periods.
  • IRR: Internal rate of return (the value we’re solving for).

NPV (Net Present Value):

NPV = CF₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ

What it means:

  • r: Discount rate (e.g., 10% in our calculator).
  • NPV tells you the current value of future cash flows, considering the cost of capital.

ROI (Return on Investment):

ROI = ((Total Returns - Total Investment) / |Total Investment|) × 100%

What it shows: The percentage gain or loss on an investment compared to its cost.

Payback Period:

What it means: The time it takes to recover your initial investment using cash flows.

Steps to Calculate:

  1. Add up the cash flows until the total equals or exceeds the initial investment.
  2. For a more precise calculation, estimate the exact recovery time using simple interpolation.
  3. Express the result in years and months.
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Anowar
Author:
Hi, I am Anowar, and more than 10 years of experience and good knowledge of mathematical applications. We create user-friendly tools that are useful in our everyday calculations.