How to Calculate the IRR using Numpy (tool included)

In this tutorial, I’ll show you how to calculate the Internal Rate of Return (IRR) using Numpy. I’ll also share with you the code to create a tool to calculate IRR.

In general, here is a template that you can use in order to calculate the IRR using numpy:

import numpy as np
irr = np.irr([initial investment in negative terms, cash flows each year separated by commas])
print (irr)

In the next section, I’ll show you the steps to calculate the IRR using a simple example.

And by the end of this tutorial, you’ll be able to launch the following tool in Python:

Steps to calculate the IRR using Numpy

Step 1: Install the numpy package

If you haven’t already done so, you’ll need to install the numpy package using:

pip install numpy

Step 2: Calculate the IRR using numpy

To calculate the IRR using numpy, you’ll need to use this template:

import numpy as np
irr = np.irr([initial investment in negative terms, cash flows each year separated by commas])
print (irr)

Let’s now review an example to see how to use this template in practice.

Imagine that you have the following information about a project:

• The initial investment is $1700
• The project is expected to generate:
  • $500 in year-1
  • $750 in year-2
  • $800 in year-3

What is the IRR?

To calculate the IRR using numpy, you’ll need to apply this code in Python:

import numpy as np
irr = np.irr([-1700,500,750,800])
print(irr)

And if you run this code you’ll get the IRR of 0.09236 (or 9.236%).

Tool to calculate the IRR

Now, I’ll share with you the code to launch a tool that will allow you to calculate the IRR using a graphical interface:

import tkinter as tk
import numpy as np

root= tk.Tk()

canvas1 = tk.Canvas(root, width = 600, height = 300)
canvas1.pack()

label0 = tk.Label(root, text='Calculate IRR')
label0.config(font=('helvetica', 14))
canvas1.create_window(300, 40, window=label0)

entry1 = tk.Entry (root, width = 40) 
canvas1.create_window(450, 100, window=entry1)

entry2 = tk.Entry (root, width = 40) 
canvas1.create_window(450, 140, window=entry2)

entry3 = tk.Entry (root, width = 30) 
canvas1.create_window(300, 250, window=entry3)

label1 = tk.Label(root, text=' Initial Investment (Absolute Value):')
label1.config(font=('helvetica', 10))
canvas1.create_window(130, 100, window=label1)

label2 = tk.Label(root, text='Cash Flow Each Year (Separated by Commas):')
label2.config(font=('helvetica', 10))
canvas1.create_window(168, 140, window=label2)

def calcIRR ():  
    cf0 = entry1.get()
    cf0 = -1*float(cf0)
    cashflows = entry2.get().split(',') #Enter values Separated by Commas
   
    cf0_and_cashflows = [cf0] + cashflows  
    irr = np.irr(cf0_and_cashflows)
  
    label3 = tk.Label(root, text= irr*100,font=('helvetica', 10, 'bold'),bg='white')
    canvas1.create_window(300, 250, window=label3)
    
button1 = tk.Button(text='Calculate IRR', command=calcIRR, bg='green', fg='white', font=('helvetica', 9, 'bold'), width = 25)
canvas1.create_window(300, 200, window=button1)

root.mainloop()

Run the code in Python and you’ll see the following display:

You can now test the tool by typing the values that you saw in the example earlier:

• For the initial investment, type the amount in absolute terms (1700)
• The cash flow for each year should be separated by commas (500,750,800)

Once you’re done inputting the values, click on the green button to Calculate the IRR:

You’ll get the same IRR of 9.236%.