IRR Calculator Based on Fixed Cash Flow

When to Use Fixed Cash Flow IRR Calculator

• Annuities: Calculate the return rate for annuity products with fixed periodic payments.
• Rental Properties: Evaluate the IRR of rental income from properties with consistent rent payments.
• Dividend Investments: Assess the return rate for investments that pay regular dividends.
• Systematic Investment Plans (SIP): Calculate IRR for regular investment contributions with fixed amounts.
• Bond Investments: Evaluate semi-annual or quarterly coupon payments with optional maturity value.

Key Features

Period Types

• Yearly: Annual cash flows (standard for most IRR calculations)
• Semi-Annual: Cash flows every 6 months (common for bonds)
• Quarterly: Cash flows every 3 months (common for dividends)
• Monthly: Monthly cash flows (common for rent and SIP)

Cash Flow Timing

• End of Period (Ordinary Annuity): Cash flows occur at the end of each period. This is the standard assumption for most financial calculations.
• Beginning of Period (Annuity Due): Cash flows occur at the beginning of each period. This typically results in a higher IRR because cash is received earlier.

Future Value (Optional)

You can optionally include a future value (FV) that represents a lump sum received at the end of the investment period. This is useful for scenarios like:

• Bond maturity value
• Investment principal return
• Property sale proceeds

How It Works

Step 1: Enter Investment Details

Enter your initial investment amount (positive number, will be converted to negative internally), the fixed cash flow amount per period, and the number of periods.

Step 2: Select Period and Timing

Choose the period type (yearly, monthly, quarterly, or semi-annual) and whether cash flows occur at the beginning or end of each period.

Step 3: Optional Future Value

If your investment has a final lump sum payment, enable the future value option and enter the amount.

Step 4: Calculate IRR

Click "Calculate IRR" to get your results. The calculator will show both the period IRR and the annualized IRR for easy comparison.

IRR Calculation Formula

The calculator solves for IRR (r) in the following equation:

NPV = -Initial Investment + Σ [Fixed Cash Flow / (1 + IRR)^t] + FV / (1 + IRR)^n = 0

Where:
• Initial Investment = Initial capital outlay (negative cash flow)
• Fixed Cash Flow = Regular periodic payment amount
• t = Time period (1, 2, 3, ..., n)
• n = Total number of periods
• FV = Future value (optional lump sum at the end)
• IRR = Internal Rate of Return

Annualization

The calculator first computes the IRR for the selected period type, then annualizes it using the formula:

Annual IRR = (1 + Period IRR) ^ periods_per_year - 1

This ensures that IRRs from different period types can be directly compared.

Example Calculation

Consider a rental property investment:

• Initial Investment: $100,000
• Monthly Rent: $2,000
• Number of Months: 60 (5 years)
• Cash Flow Timing: End of Period
• Future Value: $120,000 (property sale after 5 years)

Using this calculator, you would find that the monthly IRR is approximately 0.67%, and the annualized IRR is approximately 8.42%.

Understanding Fixed Cash Flow IRR

Fixed Cash Flow IRR is a specialized Internal Rate of Return calculation for investments with regular, periodic cash flows of the same amount. This is ideal for scenarios like annuities, rent payments, dividend payments, and systematic investment plans where cash flows occur at fixed intervals with consistent amounts.

Unlike irregular cash flow IRR calculators that require entering each period's cash flow individually, this calculator simplifies the process by accepting a fixed payment amount and number of periods, making it much faster and easier to use for regular payment scenarios.

Fixed Cash Flow IRR vs. Irregular Cash Flow IRR

Frequently Asked Questions

What is the difference between beginning and end of period?

When cash flows occur at the beginning of period (Annuity Due), you receive money earlier, which increases the IRR. When they occur at the end of period (Ordinary Annuity), you receive money later, resulting in a lower IRR. The difference can be significant for long-term investments.

How does monthly IRR compare to annual IRR?

Monthly IRR is the return rate per month. Annual IRR is the compounded annual return. For example, a 0.67% monthly IRR equals approximately 8.42% annual IRR (using compounding: (1.0067)^12 - 1).

What if my fixed cash flow is zero?

If your fixed cash flow is zero, you must provide a future value. This scenario represents a simple compound interest calculation: you invest a lump sum and receive a larger amount at the end.

Can I use this for bonds?

Yes! For bonds with regular coupon payments, use the fixed cash flow for the coupon amount, select the appropriate period (semi-annual or quarterly), and include the bond's face value as the future value.

Why is my IRR negative?

A negative IRR means your investment is losing value over time. This could happen if your periodic cash flows are too small relative to your initial investment, or if the future value is less than expected.