What Is Internal Rate of Return (IRR)?
Internal rate of return (IRR) is the discount rate that makes the net present value of a project's signed cash flows equal to 0. In practical terms, it is the implied annualized return of an investment based on the timing and size of all inflows and outflows.
Analysts often use IRR to compare projects against a hurdle rate or WACC. If the IRR is above the required return, the project may be acceptable. If it is below, the project may fail the return test even when nominal cash inflows are positive.
How to Calculate IRR
To calculate IRR, enter the initial outlay and all later cash inflows and outflows, then solve for the rate that makes the total discounted value equal to zero. This calculator does that numerically for you, including cases with uneven timing and different cash-flow frequencies.
- Enter the initial investment as a cash outflow.
- Enter each future cash inflow or cash outflow in its proper period.
- Select annual, semi-annual, quarterly, or monthly frequency.
- Compare the resulting IRR with your hurdle rate or required return.
If you also need the project value in money terms at a chosen discount rate, use the NPV Calculator alongside IRR rather than relying on a return percentage alone.
IRR vs NPV
IRR expresses performance as a rate of return, while NPV expresses performance as value created in currency terms. Both are useful, but they answer different questions.
| Metric |
What it shows |
Best use |
| IRR |
Implied annualized return |
Compare return thresholds and project efficiency |
| NPV |
Value created at a chosen discount rate |
Measure absolute value added |
In capital budgeting, many analysts prefer to review both together. Use IRR to compare returns, then confirm the decision with NPV, especially when project scale or discount-rate assumptions matter.
IRR vs MIRR
MIRR adjusts one of IRR's biggest weaknesses: the assumption that positive interim cash flows can be reinvested at the IRR itself. Instead, MIRR uses a separate finance rate for negative cash flows and a reinvestment rate for positive cash flows.
MIRR is often more realistic when you want to separate financing cost from reinvestment assumptions or when the cash-flow signs change more than once. In those cases, IRR can become misleading or produce multiple valid solutions, while MIRR gives a single return based on your chosen assumptions.
How to Calculate IRR in Excel
In Excel, the standard formula is =IRR(values) for equally spaced cash flows. If the dates are irregular, analysts often use =XIRR(values, dates) instead. This calculator covers that practical use case by letting you change both the frequency and the timing inputs directly.
A common workflow is to compare the result here with your spreadsheet model, then use DCF, FCFF, and WACC tools to test the investment from multiple finance angles.
IRR Calculator FAQ
How do you calculate IRR?
IRR is the discount rate that makes the net present value of all signed cash flows equal to 0. In practice, it is the rate r that solves Σ(Ci / (1 + r)^i) = 0 when the initial outlay and all later inflows and outflows are included. With non-conventional cash flows, more than one valid IRR can exist, which is why analysts often also review NPV.
What does IRR mean?
IRR shows the implied annualized return of a project based on its cash-flow pattern. A higher IRR usually means a more attractive project, but it should still be compared with a hurdle rate, WACC, and NPV before making a decision.
What is a good IRR?
A “good” IRR is one that exceeds your required return or hurdle rate. Many analysts compare IRR with WACC or another target return to decide whether a project creates enough value for its risk.
What is the difference between IRR and MIRR?
IRR assumes intermediate cash flows can be reinvested at the IRR itself. MIRR uses a separate finance rate for negative cash flows and a reinvestment rate for positive cash flows, which often makes it more realistic for capital budgeting. MIRR is also useful because non-conventional cash flows can produce multiple IRRs, while MIRR gives a single return based on your chosen finance and reinvestment assumptions.
Can I use monthly or irregular cash flow timing in this IRR calculator?
Yes. You can choose annual, semi-annual, quarterly, or monthly frequency and still enter editable timing values such as 1.5 if your cash flows are not evenly spaced. That makes the tool more flexible than a simple equal-period IRR calculator.
Why compare IRR with a hurdle rate?
The hurdle rate represents the minimum return the project must earn to be acceptable. If IRR is above the hurdle rate, the project may pass the return test; if it is below, it may fail even if cash inflows are positive.
What is the difference between IRR and NPV?
IRR expresses performance as a rate of return, while NPV measures value in money terms. IRR is useful for comparing return thresholds, while NPV shows how much value a project adds at a chosen discount rate. Many analysts use both together rather than relying on only one metric.
When is MIRR more useful than IRR?
MIRR is often more useful when reinvestment assumptions matter, when you want to separate financing cost from reinvestment return, or when conventional IRR could be misleading for non-standard cash-flow patterns. That includes cases where the cash-flow signs change more than once and multiple IRRs may exist.
How do you calculate IRR in Excel?
In Excel, you can use =IRR(values) for equally spaced cash flows. If timing is irregular, analysts often use =XIRR(values, dates). This calculator is designed for irregular timing by letting you edit the timing values directly.
Can IRR be negative?
Yes. A negative IRR means the project is expected to destroy value relative to the invested capital over the modeled time period.
Can I export the IRR calculation to CSV?
Yes. The calculator can export the full setup and result to CSV, including frequency, hurdle rate, finance rate, reinvestment rate, cash-flow rows, totals, IRR, MIRR, spreads, and decision output.
Example
Suppose the initial investment is 1000, and the project generates cash inflows of 220, 240, 260, 280, 300, and 320 over six periods.
The calculator solves for the rate that makes the full signed cash-flow series equal to a net present value of 0, then also calculates MIRR using your selected finance rate and reinvestment rate.
This makes the tool useful for comparing projects, screening investments against a hurdle rate or WACC, and testing how sensitive the return is to timing and reinvestment assumptions.
