📈 IRR Calculator
Calculate Internal Rate of Return from an initial investment and future cash flows.
What Is IRR and How Is It Used?
IRR (Internal Rate of Return) is the discount rate that makes the NPV of all cash flows equal to zero. It represents the annualized expected return of an investment. If IRR exceeds your cost of capital (or hurdle rate), the investment creates value. If IRR is below your hurdle rate, reject it — you'd earn more elsewhere.
IRR vs NPV
Both evaluate investment decisions, but NPV shows absolute dollar value created while IRR shows the percentage return. When comparing mutually exclusive projects, NPV is generally more reliable — a smaller project with higher IRR may create less dollar value than a larger project with lower IRR. Use both: IRR for screening, NPV for final selection.
People Also Ask
It depends on risk and your cost of capital. For private equity: 20–30%+ IRR is typical. Real estate: 10–20%. Corporate projects: typically above WACC (8–15%). A simple rule: IRR must exceed the opportunity cost of capital — what else you could earn with the same money at the same risk.
The hurdle rate (minimum acceptable IRR) reflects the cost of capital plus a risk premium. Projects must clear this bar to justify investment. Companies typically set hurdle rates 1–5% above WACC to account for execution risk and the preference for investing in higher-conviction opportunities.