How to Calculate IRR in Excel and Financial Calculator

Updated February 05, 2021
posted on 06-07-2019

Knowing how to calculate internal rate of return (IRR) is important for deciding if an investment is worth it for your company. IRR is the discount rate that results in the investment’s net present value of zero. The IRR is a “breakeven” rate of return on the investment. 

Learn how to calculate IRR either in Excel or with a financial calculator.

How to Calculate IRR in Excel

You can easily compute your  IRR on a particular investment with Excel’s IRR formula. Since it’s not a straightforward calculation, the formula helps you figure out your IRR for easier answers and instant investment decisions.

The IRR Excel Formula

You can use the IRR function in Excel to determine your Internal Rate of Return. You’ll need the following values: 

  • The initial investment, which would be negative cash flow.

  • The cash flow value for each period. 

Input each figure into the same column and instruct Excel to compute the IRR by using the following IRR Excel formula:

Input this number into the cell directly below the column with your cash flow numbers.

Example of IRR Calculator in Excel

Here’s a simple example of how to calculate IRR in Excel using the following figures:

  • Initial investment $50,000.

  • Subsequent cash flows of $20,000 each year for 5 years and $40,000 in year 6.

How to Calculate IRR Using a Financial Calculator

If you don’t use Excel (or don’t have it), you can calculate IRR using a financial calculator, such as the Texas Instrument BA II Plus.

You’ll need the same figures you’d use to find IRR in Excel, but you’ll use a calculator instead. Start by figuring out your initial investment (negative cash flow, since it takes money to make money). Next, you’ll need the projected cash flow from the investment. 

In a financial calculator, enter the following:

  • Press the CF (Cash Flow) button to start the Cash Flow register.

  • Enter the initial investment (negative number).

  • Hit enter.

  • Hit the down arrow to move to CF1 or your first year’s cash flow.

  • Enter the amount for year 1.

  • Hit the down arrow twice to enter year 2’s cash flow.

  • Repeat the process until you’ve entered each year of projected cash flow.

  • Press the IRR key.

  • Press the CPT key.

  • You should have your IRR.

Example of IRR Calculated with a Financial Calculator

Here’s an example of how to calculate IRR with a financial calculator using the following figures:

  • Initial investment $150,000.

  • Subsequent cash flows of $50,000 per year for 5 years.

 

Step 1: Press the Cash Flow (CF) Button

This starts the Cash Flow Register when you enter your initial investment. Because it’s cash you’re paying out, it’s a negative number, so, in this example, enter -$150,000. Then, hit enter.

Step 2: Press the Down Arrow One Time

The calculator should show CF1. This is where you enter the first year’s cash flow. In this example, enter $50,000.

Step 3: Press the Down Arrow Two Times

The calculator should show CF2. This is where you enter the second year’s cash flow. In this example, enter $50,000.

Step 4: Repeat

Press the down arrow two more times and repeat Step 3 until you’ve entered all five years of $50,000 cash flow.

Step 5: Press the IRR Key

This starts the IRR calculation. Then hit the CPT key. This should give you the IRR calculation for your investment. 

Compare the IRR to your benchmark rate to determine if the investment is worth it. If the IRR is higher than your benchmark rate, then you’ve got a good investment. If it’s not higher, then it may not be worth it.

Ask An Expert About IRR Calculation 

Can You Calculate IRR by Hand? 

You could calculate IRR by hand, but it’s time-consuming and there’s more risk for error than an actual calculation. You’re trying to get to a Net Present Value of 0. 

The actual calculation for IRR is:


Can Excel Calculate Negative IRR? 

Yes, if the sum of the cash flows is less than the initial investment, Excel will return a negative IRR.
 

Can You Calculate IRR by Hand? 

You could calculate IRR by hand, but it’s time-consuming and there’s more risk for error than an actual calculation. You’re trying to get to a Net Present Value of 0. 

The actual calculation for IRR is:


Can Excel Calculate Negative IRR? 

Yes, if the sum of the cash flows is less than the initial investment, Excel will return a negative IRR.