### Internal Rate of Return Calculator

### 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.

### How is IRR calculated?

IRR is primarily calculated by using a combination of trial and error and financial time value calculations (primarily net present value) to find the overall rate of return for a series of cash flows.

For IRR, the net present value of the cash flows is calculated with a guessed rate of return. If the guessed rate does not match, then a new guessed rate is used to calculate the NPV, and so on until a matching rate of return is found.

### What is Present Value?

Present Value (PV) is the total value at the beginning of the time period.### What is Future Value?

Future Value (FV) is the total value at the end of the time period.### What are periods?

Periods are the number of times that compounding (and payments) take place.### What is the rate?

The rate is the amount of interest earned per compounding period.### What is Payment (PMT)?

A payment is an amount either deposited or withdrawn at each compounding period. A negative number designates an amount that is deposited, while a positive one withdrawn. For example, if $100 is deposited each compounding period, it would be entered as '-100', while if $75 was payed out each compounding period, it would be entered as '75'.### What is Payments at start or end of a period?

A payment at the beginning of a period would mean that the payment (or deposit) occurs at the beginning of each period. A payment at the end of a period would mean that the payment (or deposit) occurs at the end of each period.### Sources and External Resources

- Wikipedia – Time Value of Money
- Wikipedia – Internal Rate of Return
- Math is Fun – Internal Rate of Return