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Formula & explanation
IRR Calculator uses the following calculation:
This is a simplified model intended for planning and education. Real-world offers from lenders, institutions, or tax authorities may include additional fees, rules, or adjustments not reflected here.
Frequently asked questions
What does IRR tell you?
It's the annualized rate of return a series of cash flows implies — higher IRR generally means a more attractive investment, all else equal.
How does IRR relate to NPV?
IRR is the discount rate at which NPV equals zero; if your required return (hurdle rate) is below the IRR, the investment typically clears your bar.
What are IRR's limitations?
It can give misleading results with unconventional cash flow patterns (multiple sign changes) and assumes cash flows are reinvested at the IRR itself, which may be unrealistic.