Question 1

What is IRR and how is it calculated?

Accepted Answer

IRR (Internal Rate of Return) is the discount rate that makes the net present value of a series of cash flows exactly zero. Because that equation has no clean algebraic solution once you have more than a couple of periods, this calculator uses Newton-Raphson iteration — the same numerical method used inside Excel's IRR() function — refining a guess until the resulting NPV converges to zero, with a bisection fallback for cash-flow patterns where the iteration doesn't settle cleanly.

Question 2

What's the difference between IRR and NPV?

Accepted Answer

NPV tells you a dollar amount — how much value an investment creates once its cash flows are discounted back to today at a rate you choose. IRR tells you a percentage — the break-even discount rate for that same series. They usually agree on accept/reject decisions for a single, conventional project, but NPV is generally considered the more reliable measure when comparing projects of different sizes, since a high IRR on a tiny investment can still create less value than a modest IRR on a large one.

Question 3

What is MIRR and why is it sometimes preferred over IRR?

Accepted Answer

MIRR (Modified IRR) fixes a hidden assumption in plain IRR: that every interim positive cash flow gets reinvested at the IRR itself, which is often unrealistic. MIRR instead lets you specify a separate, more conservative reinvestment rate for the cash you receive along the way and a separate finance rate for the money you put in, then annualizes the result — giving a figure that's usually closer to what an investor would actually realize.

Question 4

Can an investment have more than one IRR?

Accepted Answer

Yes, if the cash flow series changes sign more than once (for example, a negative outflow, a positive inflow, then another large negative outflow), the underlying equation can mathematically have multiple roots, so more than one rate can satisfy NPV = 0. In that situation IRR alone becomes unreliable as a decision tool, and NPV or MIRR at your actual cost of capital is the safer metric to lean on.

Question 5

What counts as a "good" IRR for different investment types?

Accepted Answer

It depends entirely on the risk and liquidity of what you're evaluating — there's no single universal bar. Low-risk, liquid opportunities are often judged against a hurdle in the high single digits, real estate deals commonly target the low-to-mid teens to compensate for illiquidity, and early-stage venture or private equity investments frequently need a return well above 25-30% annualized to justify the risk of loss. The right comparison is always your specific hurdle rate or cost of capital, not a generic benchmark.

Period	Description	Cash Flow	PV @ Hurdle	PV @ IRR	Cumulative CF
Year 0	Initial Investment	-$100,000	-$100,000	-$100,000	-$100,000
Year 1	Year 1 Cash Flow	$15,000	$13,636	$12,453	-$85,000
Year 2	Year 2 Cash Flow	$18,000	$14,876	$12,406	-$67,000
Year 3	Year 3 Cash Flow	$20,000	$15,026	$11,444	-$47,000
Year 4	Year 4 Cash Flow	$22,000	$15,026	$10,451	-$25,000
Year 5	Year 5 Sale + CF	$135,000	$83,824	$53,244	$110,000
TOTAL		$110,000	$42,389	—	$110,000

Metric	What It Tells You	Decision Rule	Limitation
IRR	The annualized break-even rate of return	Accept if IRR > hurdle rate	Can have multiple solutions; assumes reinvestment at IRR
NPV	Dollar value created above your required return	Accept if NPV > 0	Doesn't express a rate — sensitive to the discount rate you pick
MIRR	IRR with a realistic, separate reinvestment rate	Accept if MIRR > hurdle rate	Requires an extra reinvestment-rate assumption
Payback Period	Time to recoup the initial investment	Accept if payback < target period	Ignores the time value of money and any flows after payback

Scenario	Cash Flows	IRR	Decision @ 10% Hurdle
Equipment Purchase	−$40K, +$10K, +$20K, +$30K	19.4%	✅ Accept (IRR > 10%)
Real Estate	−$100K, +$8K/yr × 5, +$120K in yr 5	13.5%	✅ Accept
Underperforming Deal	−$50K, +$5K/yr × 5, +$30K in yr 5	−3.5%	❌ Reject (IRR < 10%)
Startup Investment	−$200K, −$50K yr 1, +$100K, +$200K, +$300K	22%	✅ Strong Accept

IRR Calculator — Internal Rate of Return

IRR Calculator

📊 Cash Flow by Period

📈 NPV Profile — NPV at Different Discount Rates

📋 Cash Flow Detail

IRR Formula and Calculation Method

Real-World IRR Examples

Frequently Asked Questions

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