IRR Calculator
:root {
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–success-green: #28a745;
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}
body {
font-family: 'Segoe UI', Tahoma, Geneva, Verdana, sans-serif;
background-color: var(–light-background);
color: var(–text-color);
line-height: 1.6;
margin: 0;
padding: 20px;
}
.loan-calc-container {
max-width: 900px;
margin: 30px auto;
background-color: var(–white);
padding: 30px;
border-radius: 8px;
box-shadow: 0 4px 15px rgba(0, 0, 40, 0.1);
border: 1px solid var(–border-color);
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h1, h2 {
color: var(–primary-blue);
text-align: center;
margin-bottom: 20px;
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margin-bottom: 30px;
padding: 20px;
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border-radius: 6px;
background-color: var(–white);
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.input-group {
display: flex;
flex-wrap: wrap;
gap: 20px;
margin-bottom: 20px;
align-items: center;
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.input-group label {
flex: 1 1 150px; /* Flexible width */
min-width: 120px;
font-weight: 600;
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.input-group input[type="number"] {
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#result {
text-align: center;
padding: 20px;
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color: var(–white);
font-size: 1.8rem;
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/* Responsive adjustments */
@media (max-width: 768px) {
.loan-calc-container {
padding: 20px;
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flex-direction: column;
align-items: stretch;
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.input-group label,
.input-group input[type="text"],
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#result {
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}
Internal Rate of Return (IRR) Calculator
Input your cash flows over different periods to calculate the Internal Rate of Return.
Understanding the Internal Rate of Return (IRR)
The Internal Rate of Return (IRR) is a crucial metric in capital budgeting and investment appraisal. It represents the discount rate at which the Net Present Value (NPV) of all cash flows from a particular project or investment equals zero. In simpler terms, it's the effective rate of return that an investment is expected to yield over its lifetime.
How IRR Works
The core idea behind IRR is to find the interest rate that makes the present value of future cash inflows equal to the initial investment (cash outflow). Mathematically, it's the rate 'r' that solves the following equation:
NPV = ∑nt=0 (CFt / (1 + r)t) = 0
Where:
- CFt = Cash flow during period t
- r = Internal Rate of Return (the rate we are solving for)
- t = Time period (0, 1, 2, …, n)
- n = Total number of periods
Because the IRR equation is typically a polynomial of degree 'n', it often cannot be solved algebraically. Therefore, numerical methods (like the Newton-Raphson method or iterative trial-and-error) are used, which is what spreadsheet software like Excel and this calculator employ.
Interpreting the IRR
- IRR > Cost of Capital (or Hurdle Rate): The investment is generally considered acceptable, as it's expected to generate returns higher than the minimum required rate.
- IRR < Cost of Capital: The investment is likely not financially attractive and should be rejected.
- IRR = Cost of Capital: The investment is expected to earn exactly the required rate of return.
Use Cases for IRR
- Investment Appraisal: Comparing the potential profitability of different investment projects.
- Capital Budgeting: Deciding whether to undertake a project, especially when comparing mutually exclusive alternatives.
- Financial Planning: Assessing the long-term viability and return of various financial strategies.
Limitations of IRR
While powerful, IRR has limitations:
- It can produce multiple IRRs for projects with non-conventional cash flows (multiple sign changes).
- It assumes that all intermediate positive cash flows are reinvested at the IRR itself, which may not be realistic.
- It doesn't consider the scale of the investment; a project with a high IRR but small initial investment might be less desirable than a project with a lower IRR but a much larger scale.
For these reasons, IRR is often used in conjunction with other metrics like NPV and Payback Period for a comprehensive investment analysis.
var periodCount = 6; // Start with 6 periods (0 to 5)
function addCashFlowField() {
var cashFlowInputsDiv = document.getElementById("cashFlowInputs");
var newDiv = document.createElement("div");
newDiv.className = "input-group";
var newLabel = document.createElement("label");
newLabel.htmlFor = "cashFlow" + periodCount;
newLabel.textContent = "Period " + periodCount + ":";
var newInput = document.createElement("input");
newInput.type = "number";
newInput.id = "cashFlow" + periodCount;
newInput.step = "any";
newInput.placeholder = "e.g., " + (Math.random() > 0.5 ? (Math.floor(Math.random() * 5000) + 1000) : -(Math.floor(Math.random() * 10000) + 1000));
newDiv.appendChild(newLabel);
newDiv.appendChild(newInput);
cashFlowInputsDiv.appendChild(newDiv);
periodCount++;
}
function calculateIRR() {
var cashFlowValues = [];
for (var i = 0; i = 0) {
document.getElementById("result").innerText = "Error: Initial investment (Period 0) must be negative.";
return;
}
var hasPositiveCashFlow = cashFlowValues.slice(1).some(flow => flow > 0);
if (!hasPositiveCashFlow) {
document.getElementById("result").innerText = "Error: At least one future cash flow must be positive.";
return;
}
var irr = irrSolver(cashFlowValues);
if (irr === null) {
document.getElementById("result").innerText = "IRR could not be calculated. Check cash flows.";
} else {
document.getElementById("result").innerText = "IRR: " + (irr * 100).toFixed(2) + "%";
}
}
// — IRR Solver Function (Newton-Raphson Method) —
// This is a simplified implementation. Real-world IRR calculations can be complex.
function irrSolver(cashFlows, guess = 0.1) {
var maxIterations = 1000;
var tolerance = 1e-6; // Precision
for (var i = 0; i < maxIterations; i++) {
var npv = calculateNPV(cashFlows, guess);
var derivative = calculateNPVDerivative(cashFlows, guess);
if (Math.abs(derivative) < tolerance) {
// Derivative is too close to zero, might be a flat spot or convergence issue
return null;
}
var nextGuess = guess – npv / derivative;
if (Math.abs(nextGuess – guess) < tolerance) {
// Converged
return nextGuess;
}
guess = nextGuess;
}
// Did not converge within max iterations
return null;
}
function calculateNPV(cashFlows, rate) {
var npv = 0;
for (var i = 0; i < cashFlows.length; i++) {
npv += cashFlows[i] / Math.pow(1 + rate, i);
}
return npv;
}
function calculateNPVDerivative(cashFlows, rate) {
var derivative = 0;
for (var i = 1; i < cashFlows.length; i++) { // Start from i=1 as t=0 term derivative is 0
derivative -= i * cashFlows[i] / Math.pow(1 + rate, i + 1);
}
return derivative;
}