IRR Calculator

What This Means For You

What Is Internal Rate of Return (IRR)?

Whether you are looking for a irr estimator, how to calculate irr, irr formula, irr returns, or irr growth — this free irr calculator provides accurate estimates to help you plan and make informed financial decisions.

The Internal Rate of Return is the discount rate at which an investment's NPV equals zero — or more intuitively, the annualized effective compounded return rate an investment earns over its lifetime. It is the most widely used metric for comparing investments of different sizes and durations on an apples-to-apples basis.

Example: You invest $100,000 and receive $30,000/year for 4 years plus a final $30,000 in year 5. The IRR is approximately 15.2% — meaning your money compounds at 15.2% annually. If your alternative investment (stock market) earns 10%, the 15.2% IRR tells you this project beats the market by 5.2 percentage points.

The decision rule: If IRR> your required rate of return (hurdle rate), accept the investment. If IRR < hurdle rate, reject. For most personal investments, the hurdle rate is 7–10% (stock market returns). For businesses, it is the WACC (typically 8–12%). For venture capital, hurdle rates are 20–30%+ to compensate for the high failure rate.

IRR Benchmarks by Investment Type

How does your investment's IRR compare to typical returns in each asset class? These benchmarks help you evaluate whether a specific opportunity is attractive:

Note: these are gross IRRs before fees. Private equity and venture capital funds charge 2% management fee + 20% performance fee, reducing net IRR by 3–5 percentage points. A private equity fund reporting 17% gross IRR may deliver only 12–14% net IRR to investors — competitive with the stock market but with far less liquidity.

IRR vs Other Return Metrics

IRR vs NPV: IRR gives you a percentage return; NPV gives you a dollar value. They usually agree on accept/reject decisions but can disagree when ranking mutually exclusive projects. A $100,000 project with 25% IRR and $20,000 NPV vs a $1,000,000 project with 15% IRR and $120,000 NPV: IRR says the small project wins; NPV says the large project creates more total value. In this conflict, NPV is the correct guide — creating $120,000 in value beats creating $20,000, even at a lower percentage.

IRR vs CAGR (Compound Annual Growth Rate): For a simple investment (invest once, receive once), IRR and CAGR are identical. For investments with multiple cash flows at different times, they diverge — IRR accounts for the timing and size of each flow, while CAGR only considers start and end values. IRR is the more complete measure when cash flows occur throughout the holding period.

IRR limitations: IRR assumes all intermediate cash flows are reinvested at the IRR itself — which may be unrealistic for high IRR investments. If a project has a 25% IRR, IRR assumes you can reinvest each cash flow at 25%. Modified IRR (MIRR) addresses this by assuming reinvestment at a more realistic rate (e.g., your cost of capital). Also, IRR can produce multiple results for cash flow streams that change sign more than once (invest, receive, invest again).

Using IRR for Real Estate and Business Decisions

Real estate example: Buy a rental property for $250,000 (Year 0: -$250,000). Net rental income: $18,000/year for 7 years. Sell in Year 7 for $325,000. Cash flows: -$250K, +$18K, +$18K, +$18K, +$18K, +$18K, +$18K, +$343K. IRR: approximately 10.8%. With leverage (25% down, $62,500): cash flows change to -$62,500, +$4,200/year (after mortgage), +$120,000 (sell net of mortgage). Leveraged IRR: approximately 16.5%. Leverage amplifies returns (and risk).

Small business acquisition: Buy a business for $200,000 generating $50,000/year in owner's earnings for 6 years, then sell for $180,000. IRR: approximately 22%. This explains why small business acquisitions are one of the highest-returning investment categories — but they come with significant operational risk and time commitment that passive investments do not require.

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