Cash Flow IRR Calculator
Calculate IRR for uneven cash flow series. Perfect for analyzing investments where yearly returns vary significantly—rental properties, businesses, or projects with irregular income patterns.
Understanding Internal Rate of Return (IRR)
The Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. Think of it as the "break-even" interest rate for an investment—it represents the actual annualized return you can expect from an investment with irregular cash flows.
When to Use IRR
- Real Estate: Rental properties with varying rents and renovation costs
- Private Equity: Investments with capital calls and distributions
- Business Projects: Expansions with uneven revenue growth
- Capital Budgeting: Comparing projects with different cash flow patterns
Example Calculations
| Initial | Cash Flows | IRR | Profit |
|---|---|---|---|
| -$40,000 | $8K, $12K, $15K, $20K | 16.9% | $15,000 |
| -$150,000 | $40K, $45K, $50K, $55K, $60K | 19.7% | $100,000 |
IRR Decision Rule
Compare IRR to your hurdle rate (minimum required return) or cost of capital:
- IRR > Hurdle Rate: Accept the investment—it creates value
- IRR < Hurdle Rate: Reject the investment—better alternatives exist
- IRR = Hurdle Rate: Indifferent—investment breaks even on required return
Frequently Asked Questions
How do I handle negative cash flows in between?
Enter negative values for years with net outflows (additional investments). The IRR calculation handles mixed positive and negative cash flows. Note: Multiple IRRs may exist with sign changes; consider using MIRR.
What's the difference between IRR and ROI for cash flows?
ROI only considers start and end values, ignoring timing. IRR accounts for when cash flows occur—money received earlier is worth more. IRR is essential for investments with irregular payments.