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Free IRR Calculator — Internal Rate of Return

Enter any series of cash flows to instantly calculate internal rate of return. Essential for evaluating real estate deals, business projects, and capital budgeting.

Use this free IRR calculator to find the discount rate that makes NPV equal zero for any cash flow series. Solved numerically via Newton-Raphson iteration — handles irregular flows, mixed signs, and multi-year investments. Compare IRR against your hurdle rate to decide whether a project creates value. No sign-up required.

What Is IRR (Internal Rate of Return)?

IRR (Internal Rate of Return) is the discount rate at which the Net Present Value (NPV) of all cash flows equals zero. It is the annualised effective return for an investment with irregular cash flows — like real estate, venture capital, or business projects.

Unlike CAGR, which only works for a single lump sum, IRR correctly handles investments where you make ongoing contributions, receive periodic distributions, or have a terminal exit value at a different time than your initial outlay. This makes IRR the standard metric for private equity, real estate, and corporate capital budgeting.

The decision rule is simple: if IRR > hurdle rate, accept the project. If IRR < hurdle rate, reject it. Your hurdle rate is the minimum return you require — typically your cost of capital, or the return you could achieve in an alternative investment of equal risk.

How to Use This IRR Calculator

  1. 1

    Enter the Initial Investment (Cash Flow at Year 0)

    Enter your upfront investment as a negative number — for example, -300000 for a $300,000 property purchase. Year 0 is always the initial outflow.

  2. 2

    Enter Cash Flows for Each Subsequent Period

    Add one cash flow per year. Positive numbers are inflows (rent, dividends, revenue). Negative numbers are additional outflows (renovation costs, capital calls). Add or remove rows as needed for your specific investment horizon.

  3. 3

    Include the Terminal/Exit Value in the Final Year

    For real estate or PE deals, the sale proceeds belong in the final year's cash flow — add them to any operating cash flow for that year. For example, if year 5 has $25,000 rent plus a $400,000 sale, enter $425,000.

  4. 4

    Compare IRR to Your Hurdle Rate

    The calculator shows your IRR, NPV at your hurdle rate, and a year-by-year cash flow summary. If IRR exceeds your hurdle rate and NPV is positive, the investment creates value.

The IRR Formula Explained

0 = CF₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + … + CFₙ/(1+r)ⁿ
CF₀
Initial Cash Flow
The upfront investment — typically a negative number (outflow)
CFₜ
Cash Flow at Period t
Net cash received (positive) or paid (negative) in period t
r
IRR
The rate that makes NPV = 0; solved numerically via iteration
n
Number of Periods
Total number of cash flow periods (years, quarters, months)

How it is solved: IRR has no closed-form solution. The calculator uses Newton-Raphson iteration — starting from an initial guess, it repeatedly applies the update rule r_new = r − NPV(r) / NPV'(r) until convergence (NPV within $0.001 of zero), typically in under 50 iterations.

Real-World Examples

Three common IRR scenarios across real estate, business, and startup investing.

Real estate rental property — 5-year hold

Cash flows: Year 0: −$300,000 (purchase). Years 1–4: +$25,000/yr (net rent). Year 5: +$425,000 ($25,000 rent + $400,000 sale proceeds).

IRR ≈ 12.4% — comfortably above a typical 8–10% real estate hurdle rate. The bulk of the return comes from appreciation; rental yield alone would be only ~8.3% CAGR on the equity invested.

Business project — 5-year capital investment

Cash flows: Year 0: −$100,000. Years 1–5: +$30,000/yr (operating cash flows).

IRR ≈ 15.2% — exceeds a 10% hurdle rate (WACC), so accept the project. NPV at 10% discount rate ≈ +$13,724. Both IRR and NPV agree: this project creates value. If hurdle rate were 16%, IRR < hurdle rate → reject.

Startup investment — 4-year exit

Cash flows: Year 0: −$50,000. Years 1–3: $0 (no distributions during growth phase). Year 4: +$200,000 (exit/acquisition).

IRR ≈ 41.4% — a 4× money-on-money return in 4 years. Angel investors and early-stage VCs typically target 25–40% IRR to account for portfolio failures. This deal meets that threshold, but note: zero interim cash flows and a binary outcome create significant liquidity and execution risk.

Frequently Asked Questions

What is IRR?
IRR (Internal Rate of Return) is the discount rate at which the Net Present Value (NPV) of all cash flows from an investment equals zero. In plain English, it is the annualised effective return of an investment that has irregular cash flows — such as real estate, business projects, or venture capital. If an investment's IRR exceeds your required hurdle rate, the investment is worth pursuing.
How is IRR calculated?
IRR is solved numerically — there is no closed-form algebraic solution. The calculator uses Newton-Raphson iteration to find the rate r that satisfies: 0 = CF₀ + CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ. The algorithm starts with an initial guess and iterates until the NPV converges to zero, typically within 0.001% accuracy. Enter your cash flows above and the calculator solves it instantly.
What is a good IRR?
A "good" IRR depends on your hurdle rate — the minimum return you require to justify an investment. Common benchmarks: real estate investors typically require 10–15% IRR; private equity targets 20–25%; venture capital expects 25–35% to compensate for failure risk. For any investment, IRR must exceed your cost of capital (WACC) to create value. Comparing IRR against the S&P 500's 10.5% nominal CAGR is a useful baseline for individual investors.
What is the difference between IRR and NPV?
NPV (Net Present Value) gives you the dollar amount of value created by an investment at a given discount rate. IRR gives you the break-even discount rate. NPV is generally preferred for capital allocation decisions because it shows magnitude — a project with $1M NPV at 10% is clearly better than one with $100K NPV. IRR can mislead when comparing projects of different sizes or durations. Always use IRR alongside NPV, not instead of it.
What is the difference between IRR and CAGR?
CAGR applies only to single lump-sum investments with no interim cash flows. IRR handles any series of cash flows — initial investment, annual distributions, reinvestments, and a final exit value. For a simple investment with no interim cash flows, IRR and CAGR produce the same result. For real estate, private equity, or any investment with multiple cash flow events, you must use IRR.
What are the limitations of IRR?
IRR has four key limitations: (1) Multiple IRRs — a project with non-conventional cash flows (sign changes more than once) can have multiple valid IRR solutions. (2) Scale blindness — it ignores the size of the investment. (3) Reinvestment assumption — IRR assumes interim cash flows are reinvested at the IRR itself, which may be unrealistic; MIRR (Modified IRR) corrects for this. (4) Mutually exclusive projects — comparing two projects solely by IRR can lead to selecting the wrong one. Always pair IRR with NPV analysis.

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