Financial
Internal Rate of Return
Calculate the Internal Rate of Return (IRR) for a series of cash flows. IRR is the discount rate that makes the net present value of all cash flows equal to zero.
Excel Formula
=IRR(A2:A7)Step-by-Step Explanation
1
IRR calculates the internal rate of return for a series of cash flows
2
A2:A7 contains the cash flows (first value is typically negative — the investment)
3
Subsequent values are the returns in each period
4
Result is the rate at which NPV equals zero
5
Higher IRR generally means a better investment
Example
| Period | Cash Flow (A) |
|---|---|
| Initial | -$100,000 |
| Year 1 | $25,000 |
| Year 2 | $30,000 |
| Year 3 | $35,000 |
| Year 4 | $40,000 |
Result: Formula: =IRR(A2:A6) → 8.24%
Common Variations
IRR with guess
=IRR(A2:A7, 0.1)Provide initial guess of 10%
MIRR
=MIRR(A2:A7, 0.1, 0.12)Modified IRR with finance/reinvest rates
XIRR for irregular dates
=XIRR(B2:B7, A2:A7)When cash flows aren't evenly spaced
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