Calculate Internal Rate of Return (IRR) and Net Present Value (NPV) for any series of cash flows. Used for property development, business investments, and project evaluation.
Enter cash flows one per line. Year 0 is typically the initial investment (negative). Positive = cash inflows.
| Metric | Value |
|---|
IRR is the discount rate that makes NPV = 0. A project is worth pursuing if IRR > required return (hurdle rate).
NPV is the present value of all future cash flows minus the initial investment. NPV > 0 means the investment adds value at the given discount rate.
IRR is the discount rate that makes the Net Present Value (NPV) of an investment exactly zero. In other words, it is the effective annual return rate an investment generates accounting for the timing of all cash flows — inflows and outflows. IRR is widely used in capital budgeting, private equity, property development, and business investment decisions.
Unlike simple ROI, IRR accounts for when cash flows occur — not just their total amount. An investment returning $50,000 in year 1 has a much higher IRR than the same investment returning $50,000 in year 5, because year 1 money can be reinvested immediately.
| Metric | What It Measures | Accounts for Timing? | Best Used For |
|---|---|---|---|
| ROI | Total % return on cost | No | Simple single-period comparisons |
| Annualised ROI / CAGR | Annual equivalent rate, lump sum | Partially | Multi-year investment comparisons |
| IRR | True effective annual rate on all cash flows | Yes | Projects with variable cash flows over time |
| NPV | Dollar value created at a given rate | Yes | Comparing project value at same discount rate |
| Year | Cash Flow | Description |
|---|---|---|
| Year 0 | −$500,000 | Land purchase + initial costs |
| Year 1 | −$300,000 | Construction costs |
| Year 2 | +$150,000 | Partial lot sales |
| Year 3 | +$900,000 | Final lot and unit sales |
| IRR | ~18.5% p.a. — achieved by iterative calculation (Newton-Raphson method) | |
What is IRR in simple terms?
IRR (Internal Rate of Return) is the effective annual return rate of an investment that accounts for the timing of all cash flows. If an investment has an IRR of 15%, it is generating a 15% effective annual return on the outstanding capital at every point in the investment period — equivalent to a bank account paying 15% interest on the unpaid balance.
What is a good IRR for Australian property development?
For residential property development in Australia, most developers target IRR of 15-25% depending on project risk, location, and market conditions. Developments in established markets with lower risk might achieve 12-18% IRR. High-rise or greenfield developments in less certain markets might target 20-30%+ to justify the additional risk and complexity.
What is the difference between IRR and NPV?
IRR tells you the percentage return rate of a project. NPV tells you the dollar value a project creates at a specified discount rate. A project with a positive NPV at your hurdle rate is worth pursuing; the IRR exceeds the hurdle rate if NPV is positive. Both are complementary — use IRR for quick comparison, NPV for absolute value assessment.
How does the IRR calculator work?
This IRR calculator finds the internal rate of return — the discount rate that makes a series of cash flows break even. Enter your initial investment and future cash flows and it solves for the IRR.