The short answer
A $100,000 investment returning $25,000, $30,000, $35,000, $40,000, and $45,000 over five years has an IRR of 19.71%. Against a 10% required return, that project has a positive NPV of $29,078.68, a profitability index of 1.29, and pays back the initial $100,000 in about 3.25 years undiscounted — every signal points to accept.
Key takeaways
- IRR of 19.71% comfortably clears the 10% required return, which is why the calculator's decision reads "Accept."
- NPV at 10% is $29,078.68 — positive NPV and IRR above the hurdle rate always agree with each other.
- Total ROI (75%) and IRR (19.71%) tell very different stories — ROI ignores that the cash arrives over 5 years, IRR accounts for it.
- Payback is 3.25 years on raw cash flows but stretches to 3.96 years once those flows are discounted at 10% — the discounted number is the more honest one.
What IRR is actually solving for
IRR is the discount rate at which the net present value of every cash flow — the initial outflow and every inflow after it — sums to exactly zero. There's no algebraic shortcut; it has to be solved iteratively. For a $100,000 investment returning $25,000 through $45,000 across five years:
0 = −$100,000 + $25,000/(1+r)¹ + $30,000/(1+r)² + $35,000/(1+r)³ + $40,000/(1+r)⁴ + $45,000/(1+r)⁵
Solved: r = 19.71%
At exactly 19.71%, the present value of the five inflows equals the $100,000 invested — no more, no less. Any required return below 19.71% means the project creates value (positive NPV); any required return above it means the project destroys value (negative NPV).
IRR vs simple ROI: why timing changes everything
Total ROI = ($175,000 − $100,000) ÷ $100,000 = 75.00%
IRR (accounts for timing) = 19.71%
ROI treats a dollar received in year 5 the same as a dollar received in year 1 — it only cares about the total. IRR doesn't: a dollar sooner is worth more than a dollar later, so IRR discounts each year's cash flow back to the present before comparing it to the initial investment. That's why 75% total ROI compresses down to an annualized 19.71% once timing is factored in — and why IRR, not ROI, is the right tool for comparing projects with different cash flow schedules.
Reading NPV, profitability index, and payback together
IRR alone doesn't tell the whole story — pairing it with a few other metrics, all at the same 10% required return, rounds out the picture:
NPV: $29,078.68 (positive — the project adds value beyond the 10% hurdle)
Profitability Index: 1.29 (each $1 invested returns $1.29 in present value)
Payback Period: 3.25 years undiscounted, 3.96 years discounted
All four metrics — IRR, NPV, profitability index, and payback — agree here, which is the clean case. When metrics disagree (which can happen with unusual cash flow patterns), NPV is generally considered the most reliable single number, since it directly measures value created in dollar terms rather than as a rate or ratio.
Related calculators
- Payback Period Calculator — focus specifically on how long a project takes to recover its initial cost.
- Present Value Calculator — discount a single future cash flow back to today's value.
- Rental Property Calculator — apply IRR-style cash flow thinking to a real estate investment.