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The internal rate of return (IRR) is the discount rate at which an investment's net present value equals zero — it's the annualized return the investment is expected to generate.
This calculator finds the IRR for an initial investment and up to 5 years of projected cash flows.
How it works
Enter your initial investment (as a positive number) and each year's expected cash flow. The calculator searches for the discount rate that makes the net present value of all cash flows equal zero, using a bisection search.
- Enter initial investment (year 0, $).
- Enter year 1 cash flow ($).
- Enter year 2 cash flow ($).
- Enter year 3 cash flow ($).
- Enter year 4 cash flow ($, optional).
- Enter year 5 cash flow ($, optional).
- Click Calculate to see your results.
Examples
$100 investment, $110 return in 1 year
Investing $100 and receiving $110 back after one year has an IRR of exactly 10% — the return that makes the investment break even in present-value terms.
Who should use it
- Evaluating the expected annualized return of a real estate or business investment.
- Comparing IRR across multiple investment opportunities with different cash flow patterns.
Industry applications
- Corporate finance and capital budgeting
- Real estate and private equity investment analysis
Advantages
- Handles up to 5 years of uneven (non-identical) cash flows.
- Uses a robust bisection search rather than assuming a single closed-form formula.
Limitations
- Limited to 5 years of cash flows — longer projections need a spreadsheet-based IRR calculation.
Common mistakes to avoid
- Entering the initial investment as a negative number — this calculator expects it as a positive amount and handles the sign internally.
- Leaving cash flow years blank when they should be zero, which can change results if a year genuinely had no cash flow.
Best practices
- Use IRR alongside NPV (Net Present Value) when comparing investments — a high IRR on a very small investment may still create less total value than a lower IRR on a much larger one.
Tips
- IRR assumes cash flows are reinvested at the IRR itself, which can be unrealistic for very high IRRs — the related MIRR (Modified IRR) metric addresses this by using a more realistic reinvestment rate.