What internal rate of return means
Internal rate of return is the discount rate that makes the net present value of a series of cash flows equal zero. It converts an uneven stream of costs and benefits into one annualised percentage, which makes it easy to compare projects of different shapes and durations. This calculator solves for IRR numerically, spreading each year's cash flow evenly across its twelve months, the same convention used inside BizCase Builder.
How to read the results
- IRR above your hurdle rate — the project earns more than your cost of capital, so it creates value.
- Positive NPV — the discounted benefits exceed the investment in today's money. NPV is the more reliable tie-breaker when two projects differ greatly in size.
- Payback period — how long until cumulative cash flow turns positive. It ignores the time value of money, so use it alongside NPV rather than on its own.
- No IRR shown — a stream that never turns positive, or one with several sign changes, may have no single valid IRR. Judge those cases on NPV.
IRR vs NPV vs ROI
ROI is a simple ratio of net gain to cost and ignores timing entirely. NPV respects timing but reports a currency amount that depends on the discount rate you pick. IRR respects timing and is rate-independent, which is why investment committees usually ask for all three. BizCase Builder models them together, with best and worst case scenarios, phased capital spend and side-by-side version comparison.
Frequently Asked Questions
- What is IRR (internal rate of return)?
- IRR is the discount rate at which the net present value of an investment's cash flows equals zero. It expresses an investment's return as a single annualised percentage.
- What is a good IRR?
- An IRR is good when it exceeds your hurdle rate or weighted average cost of capital. Many companies use a hurdle rate between 8% and 15%, so an IRR above that range is typically approved.
- How is IRR different from NPV?
- NPV reports value created in currency at a chosen discount rate, while IRR reports the rate itself. Use NPV to compare absolute value and IRR to compare efficiency across projects of different sizes.