Investing
Internal rate of return
The rate that discounts every cash flow back to the initial cost.
The Formula
0 = -C0 + sum CF / (1 + IRR)^t
The rate that discounts every cash flow back to the initial cost.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| C0 | Initial cost | currency | Cash spent at time zero. |
| CF | Annual cash flow | currency | Cash received each year. |
| n | Years | count | Life of the investment. |
What Each Symbol Means
C0currency
Initial cost
Cash spent at time zero.
CFcurrency
Annual cash flow
Cash received each year.
ncount
Years
Life of the investment.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate irr page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate IRR, filed under Finance. Every number the guide produces comes from substituting into this one line.