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IRR Calculator

Calculate the internal rate of return (IRR) for a series of cash flows. Enter an initial investment and periodic cash flows to find the discount rate that makes the net present value equal to zero.

Investment Cash Flows

Upfront cost (entered as a positive number)
Starting estimate for iteration (default 10%)
Periodic Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
Results update as you type.

How It Works

Internal Rate of Return (IRR) is the discount rate that makes the net present value of all cash flows equal to zero:

0 = −Initial Investment + ∑ (Cash Flowt ÷ (1 + IRR)t)

Newton-Raphson Method is used to solve for IRR iteratively. Starting from an initial guess, the algorithm refines the rate until the NPV converges to zero within a small tolerance.

Decision Rule: Compare the IRR to your required rate of return (hurdle rate). If IRR exceeds the hurdle rate, the investment adds value.

Understanding IRR

When to Use IRR

  • Evaluating capital investment projects
  • Comparing investments of different sizes
  • Setting minimum return thresholds
  • Analyzing private equity and venture returns

Limitations

  • Assumes reinvestment at the IRR rate
  • May give multiple solutions with non-conventional cash flows
  • Cannot compare mutually exclusive projects of different scale
  • Does not account for project size or duration

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          ROI Calculator
          Compound Interest

          

          

          

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