IRR Calculator
Calculate the Internal Rate of Return — the discount rate at which an investment's NPV equals zero — to evaluate and compare projects.
Frequently Asked Questions
What is the Internal Rate of Return (IRR)?
IRR is the discount rate that makes an investment's Net Present Value equal to zero. It represents the annualised percentage return a project is expected to generate. If a project has an IRR of 18% and your required return (hurdle rate) is 12%, the project is worth pursuing.
How do I use IRR to make investment decisions?
Accept a project if its IRR exceeds your required rate of return (hurdle rate) or cost of capital. Reject it if IRR < hurdle rate. When choosing between projects, a higher IRR is better — but also compare NPVs, since a larger project with a lower IRR may create more absolute value.
What is a good IRR for a real estate investment?
Real estate investors typically target an IRR of 12–20% for residential properties and 15–25%+ for value-add or development projects. Private equity buyout funds typically target 20–25%+ IRR. Venture capital targets 30–50%+ to account for high failure rates. Context and risk level matter enormously.
What is the difference between IRR and ROI?
ROI measures total percentage return without accounting for time — a 50% ROI over 1 year vs. 5 years are treated the same. IRR is an annualised rate that accounts for the timing of cash flows, making it far more useful for comparing multi-year investments. A 50% ROI over 5 years is only ~8.4% IRR.
Can IRR give misleading results?
Yes. Projects with non-conventional cash flows (multiple sign changes — positive to negative and back) can produce multiple IRRs or no real IRR. Also, IRR implicitly assumes reinvestment of cash flows at the IRR itself, which is often unrealistic. Use Modified IRR (MIRR) and NPV to cross-check results.