Calculate the Internal Rate of Return (IRR) for any investment project with custom cash flows. See NPV, payback period, profitability index, benchmark comparisons, and cash flow visualization. Pure client-side, instant results.
IRR (Internal Rate of Return) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. It is widely used in capital budgeting to evaluate the profitability of potential investments. A higher IRR indicates a more desirable investment. The IRR is calculated using the Newton-Raphson iterative method for precision.
IRR (Internal Rate of Return) is the annualized rate of return that makes the net present value of all cash flows equal to zero. It represents the break-even discount rate for an investment. If the IRR exceeds your required rate of return (hurdle rate), the investment is generally considered acceptable.
IRR is found by solving the equation NPV = 0, where NPV is the sum of all discounted cash flows. Since this equation has no algebraic solution for more than two periods, we use the Newton-Raphson iterative method — a numerical technique that converges rapidly to the correct rate.
A "good" IRR depends on the investment type and risk. As benchmarks: the S&P 500 averages ~10%, US Treasuries yield ~4%, and inflation runs ~3%. Most companies use a Minimum Attractive Rate of Return (MARR) of ~8%. An IRR above your hurdle rate is generally considered good.
NPV tells you the absolute dollar value an investment adds at a specific discount rate, while IRR tells you the percentage return rate that makes NPV zero. NPV is generally preferred for comparing projects of different sizes, while IRR is intuitive for comparing against rate-based benchmarks. Both are useful together.