Here is simple step by step procedures which can be followed to calculate IRR for a cash flow :

- Guess the value of r and calculate the NPV of the project at that value.
- If NPV is close to zero then IRR is equal to r.
- If NPV is greater than 0 then increase r and move to step 5.
- If NPV is smaller than 0 then decrease r and move to step 5.
- Recalculate NPV using the new value of r and go back to step 2.

Where Formula of NPV is :

** NPV = ∑ {PCF / (1+R)^T} - I **

Where

**R** = Interest Rate

**PCF** - Period Cash Flow

**I** - Initial investment

**T** = Number of Time Periods

Find the IRR of an investment having initial cash outflow of **320000**.The cash inflows
during the first, second, third, fourth and fifth years are expected to be **82800**, **85610**, **86900**, **94530** and **98570** respectively.

You find it by first guessing then keep guessing and calculating until you get a Net Present Value of zero.

NPV at **10%** discount rate = 17083.53

Since NPV is greater than zero we have to increase discount rate, thus

NPV at **11%** discount rate = 8384.46

But it is still greater than zero we have to further increase the discount rate, thus

NPV at **12%** discount rate = 36.83

NPV at **13%** discount rate = -7977.54

Since NPV is fairly close to zero at 12% value of r, therefore
** IRR ≈ 12%**