The internal rate of return condenses an entire stream of cash flows — money in, money out, at different times — into one percentage you can compare with a loan rate, a hurdle rate or another investment. It is the rate at which the investment exactly breaks even in present-value terms. This calculator finds it, flags the unusual cases where more than one IRR exists, and adds the modified IRR for a more conservative reading.
How to use the IRR calculator
- Enter the cash flows, one per line, starting with period 0. The first line is usually the investment, entered as a negative number. Use
xto repeat values, e.g.1500x24. - Choose whether each period is a year, quarter or month. IRRs for shorter periods are annualized automatically.
- Optionally enter a finance rate and a reinvestment rate to calculate MIRR. If you enter only one, it is used for both.
The NPV profile chart shows how the net present value changes with the discount rate; the IRR is where the line crosses zero.
IRR and MIRR formulas
IRR is the rate r that solves:
MIRR compounds the positive cash flows forward to period n at the reinvestment rate and discounts the negative ones back to period 0 at the finance rate:
Worked example
A rental renovation costs $80,000 today and is expected to return $12,000, $18,000, $22,000, $25,000 and $30,000 over five years, the last figure including the sale.
- Sum of returns: $107,000, a money multiple of 1.34×
- IRR: 9.149% a year — at that rate the discounted returns total exactly $80,000
- With an 8% finance rate and a 6% reinvestment rate, MIRR is 8.048%, lower because interim income is assumed to earn only 6%
A monthly example: lend $1,000 and receive $100 a month for 12 months. The IRR is 2.9229% a month, which annualizes to 41.3% — a reminder that “$200 on $1,000” is a much steeper rate than 20% when it is repaid in installments.
Reading the result
| Situation | What to do |
|---|---|
| IRR above your required return | The investment beats your hurdle; check NPV to see by how much in dollars |
| IRR below your required return | The investment does not earn enough for its risk |
| Several IRRs reported | Cash flows change sign more than once; decide using NPV or MIRR |
| No IRR found | All cash flows have the same sign, or NPV never crosses zero in the search range |
Pitfalls to avoid
- Ranking projects by IRR alone. A small project can have a higher IRR but create fewer dollars of value than a large one. For mutually exclusive choices, compare NPV.
- The reinvestment assumption. IRR implicitly assumes interim cash flows earn the IRR. When that rate is unrealistically high, MIRR gives a more sober number.
- Uneven dates. This calculator assumes equally spaced periods. Cash flows on irregular dates need a date-based method such as a spreadsheet’s XIRR.
- Scale and timing. A high IRR over a few months may matter less than a moderate IRR sustained for years.
For growth between two values with no interim cash flows, the CAGR calculator gives the same answer as IRR with less input.
IRR and MIRR are estimates based on the cash flows you enter and are not investment advice.
Frequently asked questions
What is the internal rate of return?
IRR is the discount rate that makes the net present value of all cash flows equal to zero. Put another way, it is the steady compound return the investment earns on the money tied up in it, given exactly when each dollar goes in and comes out.
How is IRR calculated?
There is no algebraic formula for more than a couple of periods, so IRR is found numerically. This calculator evaluates NPV across a wide range of rates, finds where it changes sign and narrows the root by bisection to many decimal places.
Why can there be more than one IRR?
When cash flows change sign more than once — for example an investment, then income, then a large cleanup cost — the NPV curve can cross zero more than once. The flows −100, +230, −132 have IRRs of both 10% and 20%. In such cases, rely on NPV or MIRR.
What is MIRR and when should I use it?
Modified IRR assumes positive cash flows are reinvested at a rate you choose and negative ones are financed at a rate you choose, rather than at the IRR itself. It always gives a single answer and is usually more realistic when the IRR is far above what you could actually reinvest at.
How do I annualize an IRR from monthly cash flows?
Compound it: annual IRR = (1 + monthly IRR)^12 − 1. Choose 'Months' as the period and the calculator does this for you. A 2.92% monthly IRR is about 41.3% a year, not 35%.