# IRR Calculator with NPV

An Internal Rate of Return Calculator (IRR) is used to calculate an investment's bottom line. You can use the results for bragging rights, or more importantly, to compare two or more different investment options. You should also compare the results you get against what you can earn in a risk-free investment to determine the desirability of an investment.

This calculator will calculate both the IRR and Net Present Value (NPV) for a complicated series of cash flows as well as the total invested, total returned and the profit (or loss). It supports both irregular length periods and exact date data entry.

Make sure that you check out the usage tips below (click to scroll).

#### Info...

Click, copy, paste this URL to save the inputs for yourself or to share with others.

This custom URL updates when you click the "Calc" or "Clear" buttons. Paste it into a browser's address bar and press enter to reload.

## What is internal-rate-of-return?

IRR is an annualized rate-of-return. It is known as an "internal" rate-of-return because the algorithm used does not depend on a quoted interest rate (if there is one). To calculate an IRR, one only needs to know the projected cash flow amounts and dates they are due to occur.

In more nerdy speak, IRR is the discount rate that results in a net present value equal to 0. That is if you calculated the present value (PV) of the cash inflows (investments) and cash outflows (returns or withdrawals) using the IRR, the net would equal 0. 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 an essential and sometimes overlooked tool.

By annualizing a rate-of-return, one can compare investment results for two completely different cash flows and then select the better option.

## Why is IRR useful beyond bragging rights?

IRR is a Very Useful Number because it gives the investor the ability to compare investments. That is, the IRR normalizes the results for different cash flows.

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 using Newton's method and 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 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?

The NPV calculation is useful here. 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 current 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 lean 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."

### Calculator usage and tips

**Zero amounts have no impact on the IRR result.**If you set the frequency to "Monthly," and there are only four cash flows in a year, you may leave eight initialized to 0. The same applies to 0 amounts after you've entered the final liquidation value.- Enter the
**investment's current or final value**as the last cash flow. If you are calculating the IRR for a stock or mutual fund, and you still own the investment, you should enter the investment's value as the last amount. **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, 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" may 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."
- 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.
- And don't stress out: you do
**not**need to enter the cash flows in date order. You have a computer. It and this calculator are smart enough to sort the cash flows for you once you've clicked the "Calc" button.

### And now to repeat an essential word about IRR calculators.

## 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 essential 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.

## EC says:

Karl

Can I use this to find the IRR for a lump sum pension versus monthly pension?

## Karl says:

Yes, you can do that. Have you tried it, and had a problem getting a result? If so, tell me about what you are entering and I’ll try to provide some guidance.

## Melanie says:

Which IRR calculator amongst these do you feel is the most applicable to use for the aforementioned lump sum versus monthly payout pension question?

## Karl says:

You posted your question on the IRR calculator page. That’s the calculator I think will do what you need, though I’m not entirely clean on what you mean by “which IRR calculator” as this site only has one calculator identified or called IRR calculator.

So I’m a bit confused by your question. 🙂

## Melanie says:

Thank you for your response. My apologies for the confusion.

Perhaps I should have phrased my question more as a comparison between the IRR versus the Retirement versus the Investment calculators, specifically when making an assessment to determine whether to take the present day lump sum of a pension versus the ongoing future monthly payments.

Thank you again.

## Karl says:

Oh, I think I understand now. If you want to know which is more valuable to you, a lump sum now, or a stream of future payment, you need to use this present value calculator.

What you’ll do is compare the calculated present value to the lump sum promised. If the calculate PV is greater than the lump sum, then take the monthly payments. Take a look at the calculator, and if you have questions, just ask.

## Kevin says:

Hi I am trying to determine whether making the investment is sound; a friend has asked for a loan of $20,000 at 10% annual interest for a $350,000 project contract that he has won. His TOTAL cost is going to $310,000 and hence he will be making $40,000. He will return the loan amount of $20,000 and 10% interest in 18 months. His project cash flow : cash in and cash out

Q1 ’20 cash in = $60,000

Q1 ‘ 20 cash out = 0

Q2 ‘ 20 cash in = $50,000

Q2 ‘ 20 cash out = $50,000

Q3 ‘ 20 cash in = $64,000

Q3 ‘ 20 cash out = $55,000

Q4 ‘ 20 cash in = $62,500

Q4 ‘ 20 cash out = 60,000

Q5 ’21 cash in = $77,000

Q5 ’21 cash out = $52,400

Q6 ’21 cash in = $99,400

Q6 ’21 cash out = $39,500

How would I use your calculator to determine the IRR and if I should be making this investment? Tried using the calculator but seem to not get a hang of it

## Karl says:

Thanks for your question Kevin.

I’m not sure if I understand completely. Are you asking if your loan of $20,000 is a good investment? I what you describe as two different investments and thus 2 different IRRs are appropriate. First, your friend has an investment with is’s associated cash flows. Then your investment is the loan, with its cash flows.

So, for example, from your point of view, I suspect you want an IRR on the loan.

Your investment is the $20,000 loan. Enter that as the initial investment as a negative value. Then enter the payments you are scheduled to receive on the dates expected as positive values. Then calculate your IRR. Since this is an internal rate-of-return calculation, it does not mater what is interest or what the interest rate of the loan is. You just record the payments.

Does that help?

## cheryl says:

I am looking to calculate the IRR for an investment that had an initial investment contribution and several more subsequent investment contributions. There is a return rate set of 7% and there have been distributions made approx. quarterly. This has spanned approximately the last 6-7 years. Since only a portion of each distribution amount is a return of capital, not all of the original investment amount has been returned yet. What would be the best way to calculate the IRR for the partner considering their total investment and what distributions they have received over time? Is there an online calculator that would be helpful since there are multiple tranches?

## Karl says:

This page’s IRR calculator is the correct calculator to use. Did you try it and have a problem?

To calculate the IRR, you’ll enter all the investment amounts as of the dates made. Make sure they are negative values.

Enter the withdrawals as positive values.

Then, for today’s date, enter the current value of the investment as a positive number (that is the value of the investment if you were going to withdrawal the remaining amount today).

The resulting IRR will be the IRR through today.

## Joe says:

I used your IRR calculator for a home development project, it worked great with money going into the project at different times and cash flo being earned with the sale of each house, is there a calculator that will do this and show you your biggest drawdown or what your peak capital is at any time?

## Karl says:

Hi Joe, yes there is. This financial calculator should do what you need. To see the IRR click on "settings" and then "analytics" to turn the IRR option on. This calculator will create a more detailed, printable schedule.

Scroll down the page for the tutorials.