What is IRR?
Internal Rate of Return is the annualized return rate that makes the net present value (NPV) of all cash flows equal zero. It's THE metric investors use to compare projects of different sizes and timelines on a level playing field.
0 = Σ CFt ÷ (1 + IRR)t (for t = 0 to n)
If IRR exceeds your cost of capital or hurdle rate, the project creates value. If below, it destroys value.
IRR vs NPV
- NPV tells you the “rupee value” the project adds at a given discount rate.
- IRR tells you the “percentage return” the project generates, independent of size.
- For mutually exclusive choices, NPV is the better tie-breaker. IRR can mislead when comparing differently-sized projects.
FAQ
Can there be multiple IRRs?
Yes, if cash flows change sign more than once (unconventional cash flows). This calculator returns one IRR — usually the economically meaningful one.
What if IRR doesn't converge?
With all-negative or all-positive cash flows, IRR is undefined. Shown as “—” in that case.
How is IRR calculated internally?
We use Newton-Raphson iteration starting from 0.1, converging when NPV is within ₹0.01 of zero. Works for all well-behaved cash flows.