# Internal Rate of Return (IRR) Calculator

LAST UPDATE: September 25th, 2020

### Definition – What is Internal Rate of Return (IRR)?

Internal Rate of Return is a capital budgeting tool used to compare the different investments.
IRR takes a number of different projected cash flows and calculates the total return from them.
In this way, two equally sized investments can be compared from the standpoint of return on investment.

### IRR Formula – How IRR is calculated

The IRR formula is very similar to Net Present Value. Net Present Value generates a value in today’s dollars, while IRR uses an initial investment to calculate the rate of return over the investment period.

IRR is calculated by using a process of trial and error. To find IRR, test different rates in a net present value calculation until net present value is equal to 0.

This calculator tests different rates of return and when NPV is equal to 0 it returns the rate that it found.

### What is the difference between internal rate of return (IRR) and modified internal rate of return (mirr)?

MIRR is easier to calculate (IRR is only found through trial and error). MIRR also has other benefits such as factoring in the cost of capital.

IRR is difficult to calculate and can include situations where multiple rates of return can be generated. It also has a few drawbacks compared with other rate calculation methods.