Find the annual return an investment earns from its uneven cash flows, and check its net present value at the rate you expect.
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The internal rate of return is the discount rate at which the present value of all cash flows equals zero. It is the most common single number for comparing projects, property purchases and private investments, because it expresses the return in the same annual terms as a bank rate.
Enter the initial outlay as a negative number, followed by each later cash flow in order, one per line. The calculator searches for the rate that brings the net present value to zero and also reports the NPV at a rate you choose, so you can compare the project with your hurdle rate.
A good IRR is one that beats your opportunity cost. If a stock index or savings account returns 6 percent a year, a project needs more than 6 percent after accounting for its extra risk. Compare the IRR with your required return, not with a fixed number.
IRR needs at least one negative and one positive cash flow, and a single sign change gives one clear answer. Cash flows that change sign several times can have more than one IRR or none. Use NPV at a given rate to judge those cases instead.
NPV gives a value in currency at a chosen discount rate, so a positive NPV means the project adds value at that rate. IRR gives the rate itself. Projects of different size can rank differently by IRR and by NPV, so consider both.
No. Each line is one equal period. Use years for annual flows, or months if the flows are monthly. The IRR is then the rate per period, so convert a monthly result to an annual rate by compounding it over twelve months.
Yes, that is a known limitation. IRR implicitly assumes each interim cash flow can be reinvested at the IRR itself, which is often optimistic. The modified IRR (MIRR) uses a separate reinvestment rate and is more conservative for long projects.
No. The cash flows are parsed and solved in your browser with a bisection search. Nothing is sent to a server, so confidential deal figures stay on your device.