Our IRR calculator provides greater flexibility in inputting the timing of cashflows to exact dates instead of yearly cashflows. We hope that you find it useful.

🔍 What Is IRR?

IRR is the discount rate that makes the Net Present Value (NPV) of all future cash flows (inflows and outflows) from a project equal to zero.

In formula terms, IRR is the rate r that solves:

In simpler terms, it's the rate of return at which the investment breaks even in NPV terms.

📌 Why Is IRR Important?

  1. Decision-Making Tool

    • Helps investors or managers decide whether to proceed with a project.

    • If IRR > required rate of return (or cost of capital) → project is attractive.

    • If IRR < required rate of return → project may not be worthwhile.

  2. Time Value of Money

    • IRR accounts for the time value of money, unlike simple ROI metrics.

  3. Comparing Projects

    • Useful for comparing the profitability of multiple investment options.

    • The project with the highest IRR may be preferred — though context matters (see caution below).

  4. Capital Budgeting

    • Widely used in NPV/IRR analysis for project evaluation, especially in capital-intensive sectors.

⚠️ Limitations to Keep in Mind

  • Multiple IRRs: If cash flows change signs multiple times (e.g., from positive to negative), there can be more than one IRR, causing confusion.

  • Scale and Timing Ignored: A project with a higher IRR but lower dollar value may be less desirable than a lower IRR with higher returns.

  • Reinvestment Assumption: IRR assumes intermediate cash flows are reinvested at the IRR rate, which may not be realistic.

✅ When to Use IRR

  • When you want to compare investment options of similar size and time horizon.

  • When you want a single number that summarizes the expected return.

  • When you're evaluating a project’s feasibility relative to a cost of capital or hurdle rate.