IRR (Internal Rate of Return) / ERR (Effective Rate of Return) Calculator
This calculator helps you determine the Internal Rate of Return (IRR) or Effective Rate of Return (ERR) for an investment project. IRR and ERR are key metrics used to evaluate the profitability of investments and compare different financial options by finding the rate at which the net present value (NPV) of cash flows equals zero.
Calculate IRR or ERR for Your Investment Project
IRR (Internal Rate of Return) or ERR Formula
Where:
- $$NPV$$ – Net Present Value
- $$C_t$$ – Cash flow at time t
- $$r$$ – Rate of return (IRR or ERR)
- $$t$$ – Time period (in years, months, or other time units)
The IRR is the discount rate that makes the NPV of cash flows equal to zero. The ERR takes into account the reinvestment rate of intermediate cash flows, making it more suitable for long-term projects.
The IRR represents the rate at which an investment’s present value of future cash flows is equal to its initial cost. The ERR (Effective Rate of Return) is a variation that assumes the reinvestment of intermediate cash flows at the same rate as the IRR, making it more accurate for long-term investments. Both IRR and ERR are widely used to assess the profitability and risk of investment projects in corporate finance and capital budgeting.