IRR & NPV Calculator

NPV is the decision rule; IRR is the summary

NPV discounts every future cash flow back to today at your required return and adds them up. Positive means the project creates value at that hurdle rate. IRR is the discount rate at which NPV equals zero — a single percentage that is easy to quote and easy to misuse. When ranking mutually exclusive projects, NPV wins: a small project with a spectacular IRR can create less value than a large one with a modest IRR.

IRR breaks when cash flows change sign more than once

A series that goes negative, positive, then negative again can have two mathematically valid IRRs, or none. This is not a bug in the calculator; it is a property of the polynomial. The page counts sign changes and warns you when more than one occurs, because an IRR quoted from such a series is not meaningful on its own.

The reinvestment assumption

IRR implicitly assumes interim cash flows are reinvested at the IRR itself. For a project returning 40 per cent that is usually fantasy — you rarely have another 40 per cent opportunity waiting. This is why high IRRs on short projects flatter themselves, and why MIRR, which lets you state a realistic reinvestment rate, exists.

Frequently Asked Questions