IRR (Internal Rate of Return) Calculator
Advanced investment analysis with IRR, MIRR, NPV calculations and comprehensive financial metrics
Newton-Raphson and binary search methods
Modified Internal Rate of Return analysis
Net Present Value at multiple discount rates
ROI, payback period, and comprehensive analysis
Cash Flow Analysis
Cash Flows
Note: Period 0 typically represents initial investment (negative cash flow). Positive values represent cash inflows/returns.
Understanding Investment Metrics
Key Investment Metrics
Internal Rate of Return (IRR)
The discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. Higher IRR indicates more attractive investments. Critical for capital budgeting decisions.
Modified IRR (MIRR)
An improved version of IRR that assumes reinvestment of positive cash flows at the firm's cost of capital and finances negative cash flows at the firm's financing cost. More realistic.
Return on Investment (ROI)
Simple profitability ratio calculated as (Net Profit / Total Investment) × 100. Easy to understand but doesn't account for time value of money like IRR.
Decision Making Criteria
Investment Evaluation
Compare IRR to the required rate of return (hurdle rate). Accept projects with IRR greater than the hurdle rate. MIRR provides more conservative estimates than IRR.
Multiple IRR Problem
Projects with unconventional cash flows may have multiple IRRs or no IRR at all. MIRR addresses this limitation by providing a unique, reliable measure.
Risk Assessment
Higher IRR doesn't always mean better investment. Consider project risk, timing, and scale. Use NPV alongside IRR for comprehensive investment analysis.
IRR Best Practices
Cash Flow Accuracy
Ensure cash flow estimates are realistic and based on thorough market research.
Compare to Alternatives
Use IRR alongside NPV and other metrics for comprehensive investment evaluation.
Consider Risk
Adjust for project risk by comparing IRR to risk-adjusted hurdle rates.
MIRR Preference
Use MIRR for projects with unconventional cash flows or when reinvestment assumptions matter.
Sensitivity Analysis
Test IRR sensitivity to changes in cash flows and economic assumptions.
Scale Considerations
Consider project scale - a small project with high IRR may be less valuable than a larger project with lower IRR.