List all cash flows for the investment, including the initial outflow and all future inflows and outflows
Set the net present value equation equal to zero
Use the formula: 0 = CF0 + CF1 / (1 + IRR)^1 + CF2 / (1 + IRR)^2 + … + CFn / (1 + IRR)^n
Solve for the discount rate that makes the net present value equal to zero
Use trial and error, interpolation, a financial calculator, spreadsheet software, or IRR functions to find the rate
Compare the IRR to the required rate of return or hurdle rate
Accept the investment if the IRR is greater than the required rate of return
Reject the investment if the IRR is less than the required rate of return