IRR Calculator

IRR's appeal is intuitive: it tells you the rate of return your project earns, expressed as a single percentage you can compare directly to your cost of capital or alternative investments. It's the metric every entrepreneur and venture capitalist quotes.

But IRR has subtle traps:

• it assumes interim cash flows reinvest at the IRR itself (unrealistic for high rates)
• it can produce multiple values when cash flows alternate signs
• it can lead to wrong conclusions when comparing mutually exclusive projects of different scales

For most decisions, compute both IRR and NPV and let them confirm each other.

As the CFA Institute curriculum explains, Modified IRR (MIRR) addresses two of IRR's main weaknesses:

• the unrealistic reinvestment assumption
• the multiple-IRR problem

MIRR explicitly separates the financing rate (used to discount outflows) from the reinvestment rate (used to compound inflows), then computes a single rate that equates them at the project's end.

MIRR is always unique and is generally more conservative than IRR. For private equity and corporate finance, IRR remains dominant, but MIRR is gaining traction as a more honest measure.

IRR is the discount rate that makes the NPV of all cash flows equal zero, so there is no simple closed-form formula — it is solved iteratively. In practice you test discount rates until NPV crosses zero, which is exactly what this calculator does instantly.

A $50,000 investment returning $70,000 in three years has an IRR of about 11.9%, the annual compounded rate that equates those cash flows.

IRR expresses return as a single percentage, which feels intuitive, while NPV reports value in dollars. IRR answers "what rate does this earn?" and NPV answers "how much wealth does this create?"

For ranking projects of different sizes, NPV is more reliable; for quickly screening a single project against a hurdle rate, IRR is convenient.

Most analysts compute both — use our NPV calculator together with this tool.

A good IRR is one that comfortably exceeds your cost of capital, but benchmarks vary widely:

• Public equity investors might be happy with 8–10%
• real estate deals often target 12–20%
• private equity and venture capital funds frequently aim for 20–30% or more to compensate for risk and illiquidity

Always compare IRR against the specific hurdle rate for that asset class, not a universal number.

The decision rule is straightforward: accept a project when its IRR exceeds your hurdle rate (minimum acceptable return) and reject it when IRR falls below.

The hurdle rate usually equals your cost of capital plus a risk premium.

The gap between IRR and the hurdle rate — the "spread" — indicates how much cushion you have if cash-flow estimates prove optimistic.

When a project's cash flows change sign more than once — for example an outflow, then inflows, then a large cleanup cost — the IRR equation can have several mathematically valid solutions. This "multiple IRR" problem makes the metric ambiguous for non-conventional cash flows.

In these cases, rely on NPV or modified IRR (MIRR), which always return a single, interpretable result.

A subtle but important flaw is that IRR implicitly assumes interim cash flows are reinvested at the IRR itself. For a project with a 30% IRR, that assumes you can keep reinvesting at 30% — often unrealistic.

This inflates the apparent return of high-IRR projects. Modified IRR fixes this by assuming reinvestment at a realistic rate such as your cost of capital.

Modified IRR (MIRR) solves IRR's two biggest problems: it assumes reinvestment at a realistic finance rate rather than the IRR, and it always yields a single value even with sign-changing cash flows.

Use MIRR when:

• interim cash flows are large
• the project has non-conventional cash flows
• you need a defensible reinvestment assumption for stakeholders

For simple conventional projects, plain IRR is usually sufficient.

IRR is the headline performance metric in private equity and venture capital because it captures both the size and timing of returns across a fund's life.

Funds report gross and net IRR, and timing matters enormously — an early exit boosts IRR even if the total multiple is modest.

Limited partners often pair IRR with the money multiple (MOIC) to avoid being misled by timing-driven IRR figures.

Real estate investors use IRR to combine rental cash flow, financing, and the eventual sale price into one return figure across the hold period. Because IRR weights early cash flows heavily, refinancing or an early sale can lift it substantially.

Pair IRR with cash-on-cash return and equity multiple for a complete view, since IRR alone can hide a deal that depends entirely on an optimistic exit.

Beyond multiple solutions and the reinvestment assumption, IRR can mislead when comparing projects of very different sizes — a tiny project with a high IRR may create less total wealth than a large project with a modest IRR.

IRR also says nothing about scale or absolute dollars.

The safest practice is to use IRR as a screen and confirm the final decision with NPV.