IRR of a ₹20 Lakh Franchise Investment (5 Years)

Invest ₹20 lakh in a food franchise with projected annual profits of ₹6 lakh. Calculate whether this franchise meets your return expectations.

This calculation's inputs

Number of periods: 5
Initial investment: ₹20,00,000
Hurdle rate: 12%

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IRR result

Internal Rate of Return

24.62%

Exceeds 12% hurdle rate

Total inflow

₹44 Lakhs

₹44,00,000

Total outflow

-₹20 Lakhs

₹-20,00,000

NPV at 12%

₹8.95 Lakhs

₹8,94,716

Payback period

4 periods

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About this scenario

Year 5 includes both the annual profit and the terminal value, the money you get if you sell the franchise or recover remaining assets at exit. Terminal value significantly impacts IRR for medium-term investments.

Most organised food franchise brands in India promise payback in 3-5 years, implying an IRR of 25-35%. However, actual results vary. An IRR above your cost of capital (typically 12-15% for borrowed funds) means the investment adds value.

Frequently asked questions

IRR, or Internal Rate of Return, is the discount rate that makes the net present value (NPV) of all cash flows from a project equal to zero. In plain terms, it is the annualised return your investment generates, accounting for the timing and size of each cash flow. A higher IRR means a more profitable investment.

A common benchmark is the hurdle rate, typically 10-15% for most investments in India. Real estate projects often target 15-20% IRR, while equity investments can target 18-25%. If your IRR exceeds the cost of capital or your personal required return, the investment is worth pursuing.

CAGR assumes a single lump sum investment and a single redemption, with no intermediate cash flows. IRR handles multiple periodic cash flows but assumes equal time gaps between them. XIRR is the most flexible: it handles irregular cash flows on specific dates, making it ideal for SIPs or real-world investments. For most mutual fund SIPs, XIRR is the right metric.

IRR is found by iteratively solving the equation: NPV = sum(CF_t / (1+r)^t) = 0, where CF_t is the cash flow at time t and r is the rate being solved for. This calculator uses the Newton-Raphson numerical method to converge on the answer within a tolerance of 0.0001%.

IRR cannot be calculated if all cash flows are the same sign (all outflows or all inflows), because the NPV curve never crosses zero. It can also fail if cash flows change sign more than once, creating multiple valid IRR solutions. In such cases, use NPV analysis with your chosen hurdle rate to evaluate the investment.

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IRR solved using Newton-Raphson iteration. If cash flows change sign more than once, multiple IRRs may exist. NPV at hurdle discounts at 12%.

IRR of a ₹20 Lakh Franchise Investment (5 Years)

About this scenario

Why is year 5 cash flow much higher than earlier years?

What IRR should I expect from a food franchise in India?

Frequently asked questions

What is IRR?

What is a good IRR in India?

What is the difference between IRR, CAGR, and XIRR?

How is IRR calculated?

What does it mean if IRR cannot be determined?