Free IRR & NPV Calculator

What is Net Present Value (NPV)?

Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time. It is one of the most widely used methods in capital budgeting and investment planning.

A positive NPV indicates that the projected earnings from an investment exceed the anticipated costs, making it a profitable venture. A negative NPV suggests the investment would result in a net loss when accounting for the time value of money.

NPV Formula

The formula for calculating NPV is:

NPV = Σ [CF_t / (1 + r)^t]

Where:

• CF_t = cash flow at time period t
• r = discount rate (required rate of return)
• t = time period

For example, an investment requiring $100,000 upfront that generates $30,000, $35,000, $40,000, and $45,000 over four years at a 10% discount rate has an NPV of approximately $18,108 — indicating a worthwhile investment.

What is Internal Rate of Return (IRR)?

The Internal Rate of Return (IRR) is the discount rate that makes the NPV of all cash flows from a project equal to zero. In other words, IRR is the rate of return at which the present value of future cash inflows equals the initial investment.

IRR is widely used to evaluate the attractiveness of a project or investment. If the IRR exceeds the required rate of return (hurdle rate), the project is considered acceptable. If it falls below, the project should be rejected.

IRR Formula

IRR is found by solving for r in the NPV equation when NPV = 0:

0 = Σ [CF_t / (1 + IRR)^t]

Since this equation cannot be solved algebraically, IRR is typically calculated using iterative numerical methods such as Newton-Raphson or bisection. Our calculator uses these methods to find the IRR accurately.

What is Modified Internal Rate of Return (MIRR)?

The Modified Internal Rate of Return (MIRR) addresses several limitations of the traditional IRR. While IRR assumes that positive cash flows are reinvested at the project's own IRR, MIRR uses two separate rates:

• Finance rate: The cost of capital used to discount negative cash flows (investment costs) to present value.
• Reinvestment rate: The rate at which positive cash flows are compounded to their future (terminal) value.

MIRR Formula

MIRR = (FV of positive CFs / |PV of negative CFs|)^1/n - 1

MIRR always produces a single, unique solution (unlike IRR which can have multiple solutions for non-conventional cash flows), making it a more reliable metric for comparing mutually exclusive projects.

NPV vs IRR: When to Use Each

Both NPV and IRR are essential tools in capital budgeting, but they serve different purposes:

• NPV tells you the dollar value a project adds to the firm. It is the preferred method when projects are mutually exclusive or differ in scale.
• IRR tells you the percentage return of the project. It is useful for comparing projects of similar size and for communicating returns to stakeholders.
• MIRR provides a more realistic return estimate by accounting for different reinvestment and financing rates.

How to Use This Calculator

1. NPV Calculator: Enter a discount rate and your series of cash flows (negative for investments, positive for returns). Click Calculate to see the NPV, profitability index, and present value breakdown.
2. IRR Calculator: Enter your cash flows and click Calculate. The calculator will find the discount rate that makes NPV equal to zero.
3. MIRR Calculator: Enter your finance rate, reinvestment rate, and cash flows. Click Calculate to see the modified internal rate of return.

Why Use Our IRR & NPV Calculator?