IRR Calculator

IRR stands for Internal Rate of Return. The IRR is the interest rate (also known as the discount rate) at which the net present value of all the cash flows from a project or investment equal zero. Select Number of Cash flows and enter Initial Investment and Future Inflows to obtain the annualized IRR of the cash flows.

Enter Future Cash Flows

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IRR is

Internal Rate of Return (IRR) calculation is commonly used to evaluate the desirability of investments or projects. IRR is used in capital budgeting to measure and compare the profitability of investments. It is one of the important measures used for investment appraisal. It recognizes the time value of money, and compared to the NPV (Net Present Value), it's is an indicator of efficiency. The IRR is the project's expected rate of return.

The IRR is used when the cost of the investment and the annual cash flows are known and the unknown rate of earnings to be determined.

Read the formula used on this website - What is IRR Formula ?

Also read the Example Of IRR Calculation to understand the steps used for calculation of IRR.

Advantages Of IRR

  • IRR method discloses the maximum rate of return the project can give.
  • The IRR method also uses cash flows and recognizes the time value of money.
  • IRR is a rate quantity, an indicator of the efficiency and quality of an investment.
  • Through the IRR method you can take the best decision for your investment.
  • The major uses of IRR is to compare the expected returns generated by different projects

Decision Rule Of IRR

  • The project is accepted if the IRR (Expected Return) is greater than the cost of capital (Reruired Return).
  • The project is rejected if the IRR (Expected Returne) is less than the cost of capital (Reruired Return).

Disadvantages Of IRR

  • The IRR should not be used to rate mutually exclusive projects, but only to decide whether a single project is worth investing in.
  • IRR does not consider the cost of capital; it should not be used to compare projects of different duration.
  • In the case of positive cash flows followed by negative ones and then by positive ones, the IRR may have multiple values.