# IRR Calculator with NPV

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## What is internal rate of return?

It is the discount rate (think of it as you would an interest rate) that results in a net present value of the cash inflows (investments) and cash outflows (returns or withdrawals) equal to zero. More weight is given to the earlier cash flows than to the later cash flows because of the time value of money.

For the investor, the IRR is essential but often overlooked.

## Why is IRR important?

It's an important number because it is the tool that gives the investor the ability to compare investments. That is, the IRR normalizes the results for different investments.

Take, for example, two rental properties that are for sale. The offer price for both buildings is about the same. Projected rents are about the same. However, one will have a higher upfront renovation cost while the other has higher property taxes. How does an investor know which purchase represents a better investment?

They can use an IRR calculator to make this determination.

A note of caution. When comparing investments, never make the comparison using internal rates of return calculated with different calculators.

Why is that?

Because two different calculators may calculate the results slightly differently, and neither one of them will necessarily be wrong either. (Consider for a moment that Microsoft Excel has two IRR functions that may calculate different IRRs for the same cash flows.) You don't need to get hung up on this idea. But it is something to be aware of so that you understand how to use the results correctly.

For the record, this calculator calculates the IRR by counting days (some calculators count periods).

## What is net present value?

In finance jargon, the net present value is the combined present value of both the investment cash flow and the return or withdrawal cash flow. To calculate the net present value, the user must enter a "Discount Rate." The "Discount Rate" is simply your desired rate of return (ROR).

## How is NPV useful?

The NPV is the calculation investors use to learn if they are paying too much for an investment (or if they could pay more) relative to the rate of return they want to earn. If the net present value is negative, the initial investment is too high for the investor to meet their goal ROR. If the NPV is positive, the investor can pay that amount more for the investment, and they'll still earn what they want to earn.

Here's an example....

Jack invests in already issued mortgages. Jack can buy a mortgage for $190,000 that has 210 remaining monthly payments of $1,235.90 each. The next payment is due on June 1. Jack wants to earn 6% on his investments.

Is this a good deal for Jack?

Follow these steps.

- Enter -190,000.00 for the "Initial Investment"
- Set "Initial Investment Date". In this case, that's the date Jack plans to purchase the mortgage. Use May 22 to follow along.
- Click on "Add Series". Create 210 monthly entries of $1,235.90 starting on June 1.
- Enter Jack's personal "Discount Rate" i.e. 6% — the ROR he wants to earn on his investments.
- Click "Calc"
- IRR = 3.847%
- NPV = -$27,198.22

At 3.8%, Jack will not earn the 6% he desires.

What is Jack to do?

This is where the NPV calculation is useful. It tells Jack that he is paying $27,198.22 too much for the investment. See for yourself. Change the "Initial Investment" to $-162,801.78 ($190,000.00 - $27,198.22) and click "Calc" again. Now we have:

- IRR = 6.0%
- NPV = 0.0

Jack is now a happy man assuming he can negotiate the price he needs.

Note: When the NPV is positive, that is the amount the investor can increase the initial investment by and still receive the desired ROR.

### More Details

**Users should find these recent enhancements useful:**

- "Add Series" option. Create repeated cash flows easily. Work with hundreds of cash flows without manual entry.
- Creating entries with "Add Series" does not populate the existing dates with values or reset the existing values. It creates NEW entries. If a cash flow entry exists on July 1, and you then use the "Add Series" feature to add monthly cash flows starting on June 1, you'll have two entries for July 1.
- "Add Series" feature can be used to add additional "0" entries that you can manually edit. There is no longer a restriction to 96 inputs.
- Use the "Remove 0's" feature to be left with a nice clean look.

**Save feature! - save the custom URL in a document, on your desktop as a shortcut, or email it to yourself and then use it the next time to reload all your cash flows.**- Now prints all cash flows
**Reset**is similar to a clear feature. Besides clearing the cash flows, it also changes the dates to start from the "First Cash Flow Date" and increments them by "Cash Flow Frequency."- Optionally removes zero entries so as not to print.
- Net Present Value Calculation - NPV
- Dates created from "First Cash Flow Date" not "Initial Investment Date."

Calendar Tip: When using the calendar, click on the month at the top to list the months, then, if needed, click on the year at the top to list years. Click to select a year, select a month and select a day. Naturally, you can scroll through the months and days too. Or you can click on "Today" to quickly select the current date.

If you prefer not using a calendar, single click on a date or use the [Tab] key (or [Shift][Tab]) to select a date. Then, as mentioned, type 8 digits only - no need to type the date part separators. Also, because the date is selected, you do not need to clear the prior date before typing. If your selected date format equals mm/dd/yyyy, then for Dec. 1, 2016, type 12012016.

## IRR Calculator Help

IRR is the annualized return on an investment expressed as a percentage.

The investment can be made up of a series of cash flows. That is, there can be more than one investment or one withdrawal. (However, there has to be at least one or each.) The cash flows may occur on any date and for any amount.

It is important to use the right sign (positive or negative) for each cash flow. How do you know what the correct sign is?

Think of it this way. When you first invest, you have to write a check or transfer funds. Writing a check decreases your account balance. Therefore, enter all investment cash flows, including the "Initial Investment" as negative values.

When you earn money back on your investment, you can deposit it into your checking account. The return increases your account balance. Therefore, enter all investment returns, including the final liquidation value of your investment, as positive values.

The scheduled dates update every time you change the "Cash Flow Frequency." The new dates are calculated based on the "First Cash Flow Date." But the "Cash Flow Frequency" has no direct impact on the IRR result per se. The calculator only uses the "Cash Flow Frequency" setting to create dates that most closely match your investment cash flows. If, in general, you only make additional investments (or withdrawals) twice a year, then set "Cash Flow Frequency" to "Semiannually" for example.

**Also, zero amounts have no impact on the IRR result.** You may set the frequency to "Monthly," and if there are only four cash flows in a given year, you leave eight at 0. (This also applies to 0 cash flow amounts after you've entered the final liquidation value as well.

**You do not need to enter cash flows in date order.** The calculator will sort them before calculating the result. This feature is handy, of course, if you realize that you missed entering a cash flow. Enter the amount in any available cell. Then change the date associated with that cell. Click "Calc" to sort.

If you mistakenly duplicate a cash flow, simply set one of the duplicates to "0".

Changing the "First Cash Flow Date" will reset the dates without clearing the values you've entered.

Depending on the order you use "First Cash Flow Date," "Remove 0's" and "Add Series," the "First Cash Flow Date" will frequently not be the first date in the input area. This is not a bug. Changing "First Cash Flow Date" initializes a series starting on the date selected. However, the user can change the date, or it can be removed with "Remove 0's" if the value for the start date is 0. Finally, a user can insert a series with a date before "First Cash Flow Date."

## John says:

Okay I’m still trying to wrap my mind around a few things. Help me with this example.

If I invested $100 at the beginning of this month and got paid $200 back at the end of the month to end the deal, making $100 profit.

And I could do that each month for one year but I could never invest more than the $100 each month what ROI rate would that be?

My mind works like this: If it was just simply $100 profit on $100 invested for 1 whole year it would be 100% ROI. Would it simply be 12 x 100% since I can do that 12 times in one year? So would each deal actually be at a yearly ROI rate of 1200%?

## Karl says:

No, it wouldn’t be 1200% (if it were, people wouldn’t need specialized calculators :-). It would be higher.

For the moment, don’t think of the rate-of-return as a percent, think of it as an amount. In this case the "rate" of return is $100 earned on a $100 invested in one month. When doing an annualized calculation, unless there’s a withdrawal, the starting amount at the 2nd month is $200 and your rate is a $100 on a $100 (or $200 on $200) so after the 2nd month, the investment will be worth approx. $400.00 (I’m rounding).

## John says:

Yes there would be a withdrawal each month. Actually the whole deal ends each month in that example and I can only put back in $100 for the next month. I would never have the opportunity to have more than $100 invested at any point with that example. So the most I could possibly earn per month would be $100. Would that be 1200% that way?

Another example also.

If a one year deal with a one time payment at the end = 100% ROI for $100 invested and $100 profit.

If the same deal is done but I’m paid in just 6 months instead of a year I’m thinking that is at a rate of 200% ROI for the year.

Since I would have time to do that same deal twice in a year basically. Does this seem right to you?

another example:

If I invested $100 at the beginning of the year and I collected $1200 profit at the end of the year plus my $100 back. Would the yearly ROI% be 1200%? For just a one time 1 year deal.

If the above is 1200% ROI then I need a way to calculate how much it goes up by receiving weekly payments instead of just one payment at the end of the year.

## Karl says:

What I’m not getting across is the concept of annualization.

In the 6 month example, it’s not about how often you get to do a deal. As you stated, you invest $100 and in 6 months you have $200. That’s over a 300% "annualized rate of return". "If the same deal is done" it’s the same deal and it still has greater than a 300% ROR. That the usefulness or a ROR calculation. It allows you to compare deals that are different. The calculation allows you to normalize the rate of return to a year, regardless of the term of the investment.

But now, if your question is, I made two deals in a 12 month period, what’s my combined rate of return.

You should enter the amount invested in the first deal and enter a withdrawal amount including the initial investment (after all, the deals is finished) and then enter an investment amount on the date the second investment starts followed by the withdrawals including the return of the original investment made. The calculated IRR will be your annualized rate of return for the 2 deals.

## John says:

Is there a way to calculate these without assuming all profits are being reinvested?

I think I want the annualized ROI without compounding, assuming reinvestment amt or rate, adding interest, or allowing for the calculator’s assumption of the value of money.

## Karl says:

Sure. With this calculator, you can withdraw any amount on any date you want from the cash flow stream.

From your earlier example, you can make an initial investment of $100 and then withdrawal $100 each month. The return will be huge because you are doubling your money every month.

## Manish Goel says:

very good, useful

Manish Goel

India

919310312478

## Karl says:

Thank you Manish.

## Errol says:

Hi. Thank you for the information on this website.

My question is this: I have made a series of irregular investments on irregular dates and have a present value. There have been no withdrawals and there are no plans for any types of cash withdrawals. How do I calculate the internal rate of return, and update that calculation when the present value changes (which it does daily), and when additional investments are made?

The specifics of my investments are listed below.

1. $600 on 10/11/18

2. $100 on 11/7/18

3. $300 on 11/15/18

4. $100 on 12/1/18

5. $113 on 12/14/18

Present value on 12/27/18 = $1,245.00

Thank you for your time.

## Karl says:

Hello, and you’re welcome. 🙂

The investment on 10/11/18 will be entered as the "Initial Investment". Enter it as a negative value (assume you’re writing a check and withdrawing from your checking account).

Then your investments 2 through 5 are all entered as negative values in the table/grid.

The final value (or present value) is also entered into the table on today’s date. The difference is, it is entered as a positive value (because it is what you

couldwithdrawal and put back into your checking account if you did liquidate the investment).Hope this helps. If it’s not clear, just ask again.

## Errol says:

Hi, Karl.

Thank you for the reply. This is tremendously helpful, because all the Microsoft documentation I found on XIRR and other functions referred to positive outbound cash flows after the initial negative entry in the top row.

Thank you so much for this website and for your information.

## Bobby says:

First of all, I love this thing. I’m entering an old deal I’ve already bought. My initial investment date is 2/1/2012, the first cash flow date is 8/1/2012 and it is now 1/11/2019. My question is, which date does the NPV go with? Thank you.

## Karl says:

Great! Thanks for letting me know.

The key is in the name – net present value. That is, "present value". So think "Initial Investment Date."

## ML says:

is there an appropriate, IRR equivalent, to being on the selling side of an investment.. ie., positive initial cf, negative thereafter?

## Karl says:

Thanks for the question. With respect to the IRR, there is no buying side or selling side per se. If you are selling you must have bought at some point. Enter your costs or purchases as negative inputs and your sells as positive inputs and the calculator will calculate the IRR.

Now, if you are thinking that you don’t have "costs" (perhaps you inherited some real estate or a painting) and you want to sell the "investment", you don’t have any costs. Without costs, the IRR is infinite and therefore meaningless.

Or am I misunderstanding your question?

## Michael says:

Hi. I am thinking of comparing projected returns from a potential investment versus keeping money in my bank account. Since the measure of return from my bank account over a specified time period can be thought of as a compound interest return, would it not make more sense to compare that to a potential investment’s projected compound interest return (as opposed to an IRR)?

When it comes to investments, it seems like IRR is everywhere, but compound interest return is not?…

Thank you for your thoughts.

## Karl says:

The IRR is not a compounded rate. What an internal rate of return calculation is doing is normalizing investment cash flows so that they may be compared. You can use this IRR calculator to calculate the IRR for the bank account as well, and then compare it with the investment you are considering.

Note, whenever you are using an IRR to compare investments, make sure you use the same IRR calculator for the calculation. It’s possible that 2 different calculators could use different methods for their calculation and thus they would have slightly different results.

Does that answer your question?

## bob crossman says:

So what I want to do is figure my annual rate of return but I will have a beginning date & investment amount, monthly/yearly cash flows, AND a final ending value on a certain date.

My use: I bought a property for $110,000 on 1/1/2016. I’ve had yrly cash flows of: 2016- $3765, 2017- $4451, 2018- 1484, 2019- $7553 and at the end of 2019 the property will be worth $198,400.

I thought your IRR would accomplish that but you have no place to put in an ending value and date.

What calculator do I need to do what I want? Do you have?

Thanks

## Karl says:

Hi, you are using exactly the right calculator. If you are entering investments as negative values, then the final value is entered in the grid as a positive value as of the date required. That is, the final value is entered as a withdrawal from the investment as of the date you want the IRR even if the withdrawal isn’t actually made – but the value of the investment would be available to withdrawal should you so choose. Let me know if this isn’t clear.

## Sahil says:

Hey Carl,

I am actually looking to replicate this calculator for my personal use. Do you mind sharing how did you go about in creating such a wonderful tool?

Thanks in anticipation!

## Karl says:

How did I do it? Years of study. There’s no need to replicate this calculator. Just continue to use it. It’s not going anywhere!

## Bob Schneider says:

Do you have a calculator that would factor in the tax bracket, depreciation, interest writeoff and operating losses on top of the usual income, expenses??

I’m looking for an after and before tax return

## Karl says:

Nothing that handles all your requirements, I’m afraid.

This calculator will give you the bottom line,after tax, rate-of-return. However, as you can see, you would need to know the expenses (the tax amount, the depreciation etc) and enter them as expenses.

The MACRS depreciation calculator will calculate your depreciation expense which can be entered into this calculator.

The investment calculator will consider taxes (tax rate) but the cash flow needs to be regular.

## Bob Schneider says:

This is for real estate development. I guess I could compute the yearly depreciation, operating losses & interest costs “below” the NOI as notes but there would be no computation of these on yield.

## Karl says:

Sorry, I’m not following. I had understood that you wanted an IRR after these expenses? If that’s the case, then they have to be entered into the calculator.

## Bob says:

So depreciation can be added as an expense? Like any other?

I also am looking to compute after tax yield upon sale.

Tkz

## Karl says:

When calculating an annualized rate-of-return (which is what IRR is), everything boils down to a income or expense; a buy or sell; or a debit or credit.

So yes, you can enter depreciation as an expense. If you want an after tax rate-of-return, then you would include estimated taxes as an expense as well. And of course if you want to know the rate of return before taxes, you would not include the taxes as an expense.

As mentioned previously there is a depreciation calculator on this site what will calculate the depreciation amounts for each year that you can use in this calculator.

The key in getting an IRR that is meaningful for you is correctly including each item and not reversing amounts – negative when it should be positive or vice versa.

## Bob Schneider says:

Karl-

Thanks for the input. I will continue to look.

Bob