IRR of ₹15 Lakh Machinery Purchase (6 Years)

A textile business buys machinery for ₹15 lakh. The machine saves ₹3.5 lakh per year in labour costs. Is this capital expenditure worth it?

This calculation's inputs

Number of periods: 6
Initial investment: ₹15,00,000
Hurdle rate: 15%

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IRR result

Internal Rate of Return

12.34%

Below 15% hurdle rate

Total inflow

₹22.5 Lakhs

₹22,50,000

Total outflow

-₹15 Lakhs

₹-15,00,000

NPV at 15%

-₹1.11 Lakh

₹-1,10,582

Payback period

5 periods

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About this scenario

Small and medium businesses compare machinery IRR against their borrowing rate. If you borrow at 14% and the machine delivers 18% IRR, it adds value. If IRR falls below the loan rate, the capex destroys 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.

Related calculators

What Is IRR and How Should Real Estate and Business Investors Use It?
Learn what IRR means, how to calculate it for Indian real estate and business investments, and why it beats simple return percentages for irregular cash flows.

IRR solved using Newton-Raphson iteration. If cash flows change sign more than once, multiple IRRs may exist. NPV at hurdle discounts at 15%.

IRR of ₹15 Lakh Machinery Purchase (6 Years)

About this scenario

How is machinery IRR used in SME business decisions?

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?