Cash flow by year
| Year | Cash flow | Remove row |
|---|---|---|
| 1 | ||
| 2 | ||
| 3 | ||
| 4 |
Result
IRR
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
IRR is the discount rate at which a project's NPV becomes zero. There's no direct formula to solve for it — the calculator finds it numerically, testing NPV at different rates until it lands on the one where NPV crosses zero.
The decision rule is the same as for NPV, just expressed in different units: if IRR is above the return an investor requires (say, WACC), the project is worth taking — it returns more than the money invested in it costs. If IRR is below the required return, the project destroys value.
IRR has limitations NPV doesn't. It ignores project scale: a small project with a 50% IRR can generate less money in absolute terms than a large project with a 20% IRR. And with cash flows that change sign more than once (not just "invest once, then only receive"), the equation can have multiple solutions or none — in those cases NPV is the more reliable criterion.