Internal Rate of Return (IRR) Calculator
The Internal Rate of Return is the discount rate that sets the Net Present Value of all cash flows exactly equal to zero.
The project earns more than the required return at the selected discount rate. Value is expected to be added to the firm.
Bars: present value of each period (Year 0 is initial outlay). Polyline: running cumulative total. When the line crosses zero, the project achieves economic break-even in today's money.
| Year | Cash flow | Discount factor | Present value | Running total |
|---|---|---|---|---|
| Year 0 | -$1,000,000 | 1.0000 | -$1,000,000 | -$1,000,000 |
| Year 1 | $300,000 | 0.9091 | $272,727 | -$727,273 |
| Year 2 | $3,500,000 | 0.8264 | $2,892,562 | $2,165,289 |
| Year 3 | $78,567 | 0.7513 | $59,029 | $2,224,318 |
| Year 4 | $5,464,755 | 0.6830 | $3,732,501 | $5,956,819 |
| Year 5 | $300,000 | 0.6209 | $186,276 | $6,143,095 |
| Discount Rate | Scenario | Net Present Value | Variance vs Base | Viability |
|---|---|---|---|---|
| 6.0% | -400 bps | $7,016,748 | +$873,653 | Accept |
| 8.0% | -200 bps | $6,561,766 | +$418,670 | Accept |
| 9.0% | -100 bps | $6,348,127 | +$205,032 | Accept |
| 10.0%Active | Base Case (Active) | $6,143,095 | — (Base) | Accept |
| 11.0% | +100 bps | $5,946,235 | -$196,860 | Accept |
| 12.0% | +200 bps | $5,757,137 | -$385,959 | Accept |
| 14.0% | +400 bps | $5,400,709 | -$742,386 | Accept |
| 129.8%IRR | Break-Even (IRR) | $0 | -$6,143,095 | Break-Even |
Sensitivity analysis reveals how NPV shifts when corporate borrowing costs or inflation vary. As the discount rate increases, present value decreases.
Formula & Calculation Logic
0 = -Initial Investment + Σ [CF_t / (1 + IRR)^t]This financial model applies precise periodic compounding to establish the exact present economic value of future cash inflows against the required initial investment.
Key Capabilities & Features
- High-precision Newton-Raphson numerical solver
- Hurdle rate comparison benchmark
- NPV profile curve visualization
- Payback and PV of inflows metrics
Frequently Asked Questions
What is Net Present Value (NPV)?
Net Present Value (NPV) is a core financial metric used in capital budgeting to analyze the profitability of a projected investment or project. NPV calculations take into account the time value of money by discounting expected future cash flows back to their present value using a specified discount rate (such as WACC or required rate of return). If the NPV is positive, the project is projected to generate surplus value over and above its cost of capital.
How is NPV different from IRR?
While both are discounted cash flow metrics, NPV provides an absolute currency figure (e.g. +₹4,34,871) indicating total net shareholder wealth created, whereas IRR provides an annualized percentage rate of return (e.g. 24.00%). Unlike IRR, NPV does not suffer from unrealistic reinvestment rate assumptions (NPV reinvests at the firm's WACC or hurdle rate, whereas IRR assumes reinvestment at the IRR) or multiple mathematical roots on non-conventional cash flows. In capital budgeting, always prioritize NPV over IRR when evaluating mutually exclusive proposals or investments of differing scale. Explore our complete [NPV vs IRR Guide](/npv-vs-irr/).