What the IRR tells you
The internal rate of return is the discount rate at which a project's NPV equals zero — its intrinsic return. If the IRR is above your cost of capital, the project is worth pursuing.
How IRR is computed
There's no closed-form solution, so IRR is found numerically. This calculator searches for the rate that zeroes out NPV across your cash flows, the same method spreadsheets use behind the scenes.
When IRR can mislead
Projects with alternating positive and negative cash flows can have multiple IRRs or none. When IRR behaves oddly, fall back on NPV — it always gives a clean answer.