How this number is made
Internal rate of return is the discount rate that makes the present value of the cash you get back equal the cash you put in. This page assumes the same cash amount every year, plus an extra amount in the last year for a sale or a return of principal. Uneven yearly cash flows need a spreadsheet. A high IRR on a tiny, short project can still be a small amount of money.
- The upfront amount is an outflow. Type it as a positive number. The page treats it as money leaving.
- The last year receives the annual cash plus the extra terminal amount.
Formula
Find r where the investment = the sum of each year’s cash ÷ (1+r)^year, with the terminal amount added to the last year.
Worked example
With the figures already in the form, internal rate of return is 9.30%.
Questions
Why is there no IRR?
The sign of the cash flows never crosses zero in the range this page searches, or the term is zero. A project that only loses money may not have a meaningful rate.
Is IRR the same as CAGR?
CAGR is the growth of a starting value into an ending value with nothing paid out along the way. IRR allows cash along the way.