🎯 IRR Calculator
Calculate the Internal Rate of Return — the discount rate at which the net present value of your investment equals zero — and compare it against your hurdle rate to decide whether to proceed.
Enter your values
- NPV at hurdle rate€6,861.80
- Simple payback period4
- Excess return vs hurdle5.24%
What this means
- IRR of 15.24% exceeds the hurdle rate — the investment clears the required return by 5.24%.
- NPV at the hurdle rate: €6,861.80 (positive means the investment adds value above your required return).
- Simple payback period: 4 years (undiscounted).
Visual results
Detailed breakdown
| Discount rate (%) | Net Present Value |
|---|---|
| 1 | €22,767.36 |
| 2 | €20,636.76 |
| 3 | €18,602.25 |
| 4 | €16,658.32 |
| 5 | €14,799.84 |
| 6 | €13,021.99 |
| 7 | €11,320.31 |
| 8 | €9,690.62 |
| 9 | €8,129.02 |
| 10 | €6,631.84 |
About this calculator
What this calculator does
This IRR (Internal Rate of Return) calculator finds the single discount rate at which the net present value of your investment equals exactly zero. That rate is the effective annualised return embedded in the project’s cash flows — the return the investment itself generates, expressed as a percentage. Enter your initial outlay, the annual cash flow you expect to receive, the investment horizon, any terminal or salvage value at the end, and your required hurdle rate. The calculator then tells you whether the investment clears your return threshold and by how much.
The formula
IRR is the rate r that satisfies:
0 = −C0 + Σ(t=1..n) [ CF / (1 + r)^t ] + TV / (1 + r)^n
where:
- C0 — the initial investment (cash outflow at t = 0)
- CF — the expected constant annual cash inflow
- n — the investment horizon in years
- TV — terminal value (salvage or residual value) received at year n
- r — the IRR (what we are solving for)
Because this equation has no closed-form solution, the calculator uses a bisection search over [0 %, 999 %] with 200 iterations, converging to a precision better than 0.0001 %. The result is the rate at which the NPV profile curve crosses zero — visible in the chart.
The NPV at your hurdle rate is computed separately using the standard DCF formula, where the hurdle rate takes the place of r. A positive result means the investment creates surplus value even after demanding your required return.
How to interpret your results
- Internal Rate of Return (IRR) is the headline metric. Compare it directly to your hurdle rate (required return). IRR above the hurdle = accept; IRR below the hurdle = reject or renegotiate terms.
- NPV at hurdle rate converts the verdict into euros. A positive NPV at your hurdle rate means the project creates that much surplus value in today’s money above and beyond covering your required return.
- Excess return (IRR minus hurdle) shows the margin of safety. A narrow margin suggests the investment is sensitive to cash flow shortfalls or cost overruns.
- Simple payback period is the undiscounted number of years to recover the initial outlay from cash flows alone. It ignores the time value of money but gives a quick liquidity check.
- NPV profile chart plots the NPV across a range of discount rates. Where it crosses zero is the IRR. The slope of the curve shows sensitivity: a steeply descending curve means NPV is very sensitive to the discount rate used.
Common use cases
- Capital investment decisions: evaluating whether to purchase equipment, expand a facility, or launch a new product line by comparing the project IRR against the company’s WACC
- Private equity and venture capital: screening investment opportunities against a minimum IRR threshold (e.g. 20 %) before committing capital
- Real estate underwriting: computing the return on a buy-and-hold property investment, combining annual rental yield with the eventual sale proceeds as the terminal value
- Infrastructure and energy projects: assessing long-horizon investments (solar, wind, roads) where a lump-sum terminal value represents residual asset worth
- Comparing mutually exclusive projects: when two projects have different scales or durations, comparing their IRRs against the hurdle rate (alongside NPV) helps rank them correctly
Frequently asked questions
What does IRR mean?
The Internal Rate of Return (IRR) is the discount rate at which the net present value of all cash flows from an investment equals zero. In practice it is the annualised effective return the project itself generates. If the IRR exceeds your required rate of return (hurdle rate), the investment adds value; if it falls below, you would be better served by the next-best alternative.
What is the difference between IRR and NPV?
NPV gives you an absolute euro figure — the surplus value created after compensating for the time value of money. IRR gives you a rate — the percentage return embedded in the cash flows. Both stem from the same discounted cash flow framework: IRR is the rate that makes NPV equal to zero. For a go/no-go decision, NPV is more reliable because it measures actual value added and is not distorted by project scale. Use IRR to benchmark the return against your hurdle rate.
What is a good IRR?
There is no universal answer — a good IRR depends on the risk profile and opportunity cost of the investment. As a rule of thumb: for corporate capital projects, an IRR above the weighted average cost of capital (WACC) is required. For private equity, 20–30% is often the minimum target. For real estate, 10–15% is typically considered solid. Always compare the IRR against your specific hurdle rate rather than any absolute benchmark.