# Basic IRR Calculator

**Basic Internal Rate of Return (IRR)**

**(a) What is this?** This calculator shows you an Internal Rate of Return (IRR), or return on your investment.

**(b) What does this tell me?** The internal rate of return on an investment or project is the annualised effective compounded interest rate, or discount rate that makes the NPV of all cash both negative and positive from a particular investment equal zero. Confused? A simple way to view this is to consider the IRR as the interest rate which the investment provides. The higher the number the better it is. In theory, you should undertake all projects with an IRR that exceeds that cost of capital. In other words if you are earning an IRR of greater than the interest rate you are paying to use that money, in theory you should do it. Remember that it is only a theory.

**(c) Why should I use it?** To help assist you to determine whether or not an investment is worthwhile. This is a basic assessent tool and for any significant investment decision you and your financial advisor/accountant should do a thorough analysis using recognised accounting and investment tools and techniques. This is a tool to give you more information about whether to undertake a deeper analysis.

**(d) Caution:** This is a basic IRR. Use it as a guide only. Usually a IRR is much more complex and detailed. You should take the advice of your financial advisor/accountant regarding any investment decision. This IRR typically assumes there is only one "investment," multiple investments require a different tool. Do not rely on this tool as your only decision making tool. You use this calculator at your risk.