IRR Calculator (Internal Rate of Return, VND)
If you live and work in Vietnam, sooner or later you face a choice between leaving money in a VND term deposit and putting it into something with a real chance of higher returns — a rental apartment, a small business stake, or a private deal a friend pitches over coffee. IRR (Internal Rate of Return) is the single number that lets you compare these on equal footing. Formally, the IRR is the discount rate at which a project's net present value (NPV) equals zero — the compounded annual return the investment earns if every cash flow lands as forecast.
The decision rule is refreshingly simple. Compare the IRR to your hurdle rate (also called the required rate of return or cost of capital — for many savers in Vietnam, the safe deposit rate they could otherwise earn). If IRR > hurdle rate, the deal beats your alternative and adds value; if IRR < hurdle rate, your money is better off elsewhere. In this page's illustrative example — invest 500.000.000 VND today and collect 150.000.000 VND a year for 5 years — the IRR works out to about 15.2% per year. Against a 10% hurdle, that clears the bar.
The calculator above takes an initial investment, a constant annual cash flow and a number of years, then solves for IRR by bisection over the 0%–100% range. One caveat applies throughout: the cash flows and rates in every example are illustrative assumptions, not quotes. The result is only as good as your cash-flow forecast, and IRR is a screening tool — never a promise of profit.
How the calculator computes IRR
Definition via NPV
The IRR is the rate r that solves NPV(r) = 0:
NPV(r) = −Initial + Σ CF_t / (1 + r)^t = 0
| Symbol | Meaning |
|---|---|
| r | The internal rate of return we solve for |
| CF_t | Cash flow received at the end of year t |
| Initial | The outlay at time 0 (a negative cash flow) |
| t | Year index (1, 2, … through the horizon) |
This equation generally has no closed-form solution, so the tool uses bisection: it starts with the bracket [0%, 100%], evaluates NPV at each end, then repeatedly takes the midpoint and narrows toward the side where NPV changes sign. After about 60 iterations the error is below 0.00001% — more than precise enough for any real decision. This is exactly the algorithm running in the widget above, so you can reconcile every figure.
The decision rule: IRR vs your hurdle rate
- IRR > hurdle rate → positive NPV → the project creates value; worth pursuing.
- IRR < hurdle rate → negative NPV → reject, or find a better use of the capital.
- IRR = hurdle rate → economically break-even.
Your hurdle rate should reflect the cost of capital and the risk of the project. If you can earn a safe return on a VND deposit, a riskier venture has to clear an IRR meaningfully above that to compensate you for the risk you are taking.
The reinvestment assumption — IRR's biggest catch
IRR implicitly assumes every cash flow you receive is reinvested at the IRR itself until the end of the horizon. When the IRR is high, that assumption is often unrealistic — you rarely have a standing opportunity to redeploy cash at the same rate — so IRR can overstate a project's appeal. For that reason, use IRR alongside NPV: NPV measures value created in absolute money terms, while IRR measures relative efficiency as a percentage. When two projects conflict, NPV is usually the more reliable tie-breaker.
What the model leaves out
The tool assumes level, certain cash flows and ignores taxes, inflation and the risk of outright failure. A project can have multiple IRRs when its cash flows change sign more than once (for example, if you must inject more capital mid-life); in that case prefer NPV. Treat the output as a screening scenario, not a guarantee.
Worked example: invest 500.000.000 VND, receive 150.000.000 VND/year for 5 years
Illustrative assumptions: you pay 500.000.000 VND at year 0, collect exactly 150.000.000 VND at the end of each of the next 5 years, with no salvage value at the end. The cash-flow series:
| Year | Cash flow | Note |
|---|---|---|
| 0 | −500.000.000 | Initial investment |
| 1 | +150.000.000 | Cash received |
| 2 | +150.000.000 | Cash received |
| 3 | +150.000.000 | Cash received |
| 4 | +150.000.000 | Cash received |
| 5 | +150.000.000 | Cash received |
| Total in | +750.000.000 | Sum of positive flows (undiscounted) |
Solving NPV(r) = 0 by bisection gives an IRR of about 15.2% per year. You can verify it: plug that same 15.2% back into the NPV formula and the result is only about 0 VND — essentially zero, which is the definition of IRR.
The three metrics the tool shows:
- IRR ≈ 15.2% — the equivalent compounded return per year.
- Total cash flow in = 750.000.000 VND — 1.5× the outlay, but spread across 5 years.
- Simple (non-annualized) return = 50% = (750.000.000 − 500.000.000) / 500.000.000. This is precisely why you must never confuse IRR with the simple return: a headline 50% total gain sounds huge, but stretched over 5 years it is only 15.2% a year.
Comparing to a hurdle rate. Suppose your hurdle is 10%/year. Since IRR 15.2% > 10%, the project clears the bar — NPV discounted at 10% is positive, roughly 68.618.015 VND → accept. Now consider a weaker version: same 500.000.000 VND outlay but only 120.000.000 VND a year. The IRR drops to 6.4%, below the 10% hurdle, and NPV at 10% turns negative by about 45.105.588 VND → reject. Remember the IRR assumes you can reinvest each 150.000.000 VND back at 15.2%; if you cannot, your realized return will be lower.
Frequently asked questions
What is IRR (internal rate of return)?
IRR is the discount rate at which a project's net present value (NPV) equals zero — effectively the compounded annual return the investment earns. In this page's illustrative example, investing 500.000.000 VND and receiving 150.000.000 VND a year for 5 years gives an IRR of about 15.2% per year. You compare it to your hurdle rate: a higher IRR means the deal is worth considering.
How is IRR different from NPV?
NPV tells you the value created in absolute money terms at a chosen discount rate; IRR is the discount rate that makes NPV exactly zero, expressing relative efficiency as a percentage. For the sample deal, NPV at a 10% discount rate is about 68.618.015 VND (positive), consistent with IRR 15.2% > 10%. When two projects conflict, NPV is the more reliable tie-breaker.
How do you calculate IRR by bisection?
Solve NPV(r) = −Initial + Σ CF_t/(1+r)^t = 0 numerically: start with the bracket [0%, 100%], evaluate NPV at each end, take the midpoint, and narrow toward the side where NPV changes sign, repeating about 60 times until the error is below 0.00001%. This is exactly how the calculator works, so the 15.2% result for the sample deal is reproducible step by step.
What is a good IRR?
There is no fixed threshold — a good IRR is one that exceeds your hurdle rate (required return) after allowing for risk. If you can earn a safe return on a VND deposit, a riskier venture must clear an IRR well above that to be worthwhile. The sample deal's 15.2% beats a 10% hurdle but would be rejected against a 20% one. All numbers here are illustrative assumptions.
Why does IRR differ from the total return I receive?
Because IRR expresses performance per year, while total return is an undiscounted cumulative figure. The sample deal collects 750.000.000 VND on a 500.000.000 VND outlay — a simple return of 50%, which sounds large, but spread over 5 years the IRR is only 15.2% a year. Always compare investments on an annualized IRR basis, not on headline total-return percentages.
What are the limitations of IRR?
The biggest is the reinvestment assumption: IRR implicitly assumes every cash flow is reinvested at the IRR itself until the horizon ends, which is often unrealistic at high IRRs and can overstate appeal. Projects whose cash flows change sign more than once can also have multiple IRRs. Use IRR alongside NPV, and remember it ignores taxes, inflation and the risk of failure.
Should a foreigner in Vietnam use IRR to judge a rental or local deal?
Yes — IRR is ideal for putting a VND deal next to your safe alternative. Take a 2.000.000.000 VND outlay returning 220.000.000 VND a year for 8 years: total in is 1.760.000.000 VND (simple return -12%), but the IRR is only about 0.0% a year. Against an illustrative 5% deposit, that deal does not clear the bar — exactly the kind of insight IRR surfaces that a headline total return hides.