IRR Calculator

IRR is the discount rate that makes the NPV of all cash flows equal to zero. It represents the annualized effective compound return rate of an investment. Higher IRR = better investment. IRR above your required return rate indicates a good investment.

ROI measures total return as a percentage of investment but ignores timing. IRR accounts for when cash flows occur (time value of money). A project returning $100k over 3 years has different IRR than one returning $100k over 10 years, even with same ROI.

Good IRR depends on context. Generally: >15% is excellent, 10-15% is good, 5-10% is acceptable. Compare to alternatives: stock market averages ~10%, bonds ~4-5%, savings ~4%. Factor in risk - riskier investments should have higher required IRR.

IRR assumes cash flows are reinvested at the IRR rate (often unrealistic). Multiple IRRs can exist with non-conventional cash flows. IRR ignores project size - a small project with 50% IRR may be worse than a large one with 20% IRR. Use with NPV for full picture.

NPV is the total value created in today's dollars. Positive NPV = investment adds value. Use discount rate equal to your cost of capital or required return. If IRR > discount rate, NPV will be positive. NPV tells you how much value; IRR tells you the rate.