What is IRR?
Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of all cash flows from an investment equal to zero. In plain English: it's the annualized return your investment is expected to generate, accounting for the timing of every cash flow in and out.
IRR is widely used in private equity, real estate, and capital budgeting to compare projects of different sizes and timelines. If the IRR exceeds your required rate of return (also called the hurdle rate), the investment is generally worth pursuing.
How to use this calculator
Enter your initial investment as a negative cash flow (Year 0), then add positive cash flows for each subsequent year. The calculator uses Newton-Raphson iteration to find the exact rate. You can add as many years as needed using the + button.
Frequently Asked Questions
What is a good IRR?
A "good" IRR depends on the asset class and risk profile. For private equity, a 20%+ IRR is typically expected. For real estate, 12–18% is common for value-add deals. For public equities, anything above the S&P 500's historical ~10% is outperformance. Always compare against your hurdle rate — the minimum return you require for a given level of risk.
What is the difference between IRR and NPV?
IRR is a percentage return; NPV is a dollar amount. NPV tells you how much value an investment adds in today's dollars given a specific discount rate. IRR tells you the rate at which NPV equals zero. For ranking independent projects, NPV is generally more reliable — IRR can give misleading results when cash flows change sign multiple times.
What does a negative IRR mean?
A negative IRR means the investment is expected to lose money — you get back less in total than you put in, even before adjusting for time. It's a clear signal to pass unless there are non-financial reasons to proceed.
What are the limitations of IRR?
IRR assumes that interim cash flows are reinvested at the same IRR — which is often unrealistic for high-return projects. It can also produce multiple solutions when cash flows change sign more than once. Modified IRR (MIRR) addresses the reinvestment assumption, and NPV is generally preferred for absolute value comparisons.