IRR (Internal Rate of Return) Calculator
Calculate the IRR for a series of cash flows to evaluate the profitability of an investment.
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Use this IRR calculator, internal rate of return calculator, IRR, rate of return calculator, investment calculator calculator for quick, clear estimates. Try a tiny example to see the impact of each input.
Q: What is a good IRR for an investment?
A “good” Internal Rate of Return (IRR) is relative and depends on the type of investment and the investor’s required rate of return or hurdle rate. Generally, an IRR that is higher than the cost of capital and the hurdle rate indicates a potentially profitable investment. For some real estate investments, an IRR of 15-20% might be considered good, while for venture capital, it could be 25% or higher due to the increased risk.
How do you calculate IRR on a calculator?
To calculate IRR on a financial calculator, you typically input the initial investment as a negative cash flow, followed by the subsequent positive cash flows for each period. Then, you use the dedicated IRR function, usually labeled “IRR” or “IRR/YR,” to compute the rate that makes the Net Present Value (NPV) of these cash flows equal to zero.
What is the difference between ROI and IRR?
Return on Investment (ROI) is a simple ratio that measures the profitability of an investment by dividing the net profit by the initial cost, expressed as a percentage. Internal Rate of Return (IRR), on the other hand, is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero, considering the time value of money. While ROI provides a quick snapshot of profitability, IRR offers a more comprehensive view by accounting for when cash flows occur.
Is a higher IRR better?
Generally, a higher Internal Rate of Return (IRR) is considered better, as it indicates a more profitable investment, assuming all other factors are equal. A higher IRR means the investment is expected to generate a greater return over its life relative to the initial outlay, making it more attractive to investors. However, IRR should be considered alongside other metrics like Net Present Value (NPV) and project scale for a complete evaluation.