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IRR and MOIC cheat sheet for interviews

MOIC (multiple on invested capital) is simple: money out ÷ money in. IRR is the annual return that accounts for time: the same 2.0x is great over 3 years (about 26%) and mediocre over 7 (about 10%).

In interviews you won't have a calculator, so learn a few anchors. The table below is computed exactly as MOIC^(1/years) − 1, rounded to the nearest percent. The Rule of 72 helps too: money doubles in about 72 ÷ rate years.

IRR by MOIC and hold period

MOIC2 yrs3 yrs4 yrs5 yrs7 yrs
1.5x22%14%11%8%6%
2.0x41%26%19%15%10%
2.5x58%36%26%20%14%
3.0x73%44%32%25%17%
4.0x100%59%41%32%22%

Quick quiz (10 questions)

Invest $100, receive $200 after 5 years. IRR is roughly:
  1. 10%
  2. 15% ✓
  3. 20%
  4. 26%
2x over 5 years: 2^(1/5) ≈ 1.149, so about 15% a year.
A 3.0x return over 5 years is roughly what IRR?
  1. 15%
  2. 20%
  3. 25% ✓
  4. 35%
3^(1/5) ≈ 1.246, so about 25%.
Entry equity $100, exit equity $250. MOIC is:
  1. 1.5x
  2. 2.0x
  3. 2.5x ✓
  4. 25%
250 ÷ 100 = 2.5x.
What does MOIC stand for?
  1. Multiple on invested capital ✓
  2. Margin on income and cash
  3. Market-owned investment capital
  4. Monthly operating income change
MOIC = exit equity ÷ entry equity.
You invest $50 and receive $150. MOIC is:
  1. 1.5x
  2. 2.0x
  3. 3.0x ✓
  4. 100%
150 ÷ 50 = 3.0x.
What does IRR capture that MOIC doesn't?
  1. Fees
  2. Time ✓
  3. Taxes
  4. Leverage
IRR is annualized, so faster returns score higher.
2.0x in 3 years is roughly what IRR?
  1. 15%
  2. 26% ✓
  3. 20%
  4. 35%
2^(1/3) ≈ 1.26, so about 26%.
2.5x in 5 years is roughly what IRR?
  1. 10%
  2. 15%
  3. 20% ✓
  4. 30%
2.5^(1/5) ≈ 1.20, so about 20% a year.
3.0x in 3 years is roughly what IRR?
  1. 44% ✓
  2. 25%
  3. 35%
  4. 60%
3^(1/3) ≈ 1.44, so about 44% a year.
Which is better for IRR: 2x in 3 years or 2x in 6 years?
  1. 2x in 6 years
  2. 2x in 3 years ✓
  3. They're equal
  4. Can't tell
Same multiple, shorter time, higher IRR.

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