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Internal rate of return

Show Notes

Excel icon disabled 3c13ed16262e8421a2688ffda8aed346257bb277d03dab048e0008b9dacbd633 internal_rate_of_return_before.xlsx

Excel icon disabled 3c13ed16262e8421a2688ffda8aed346257bb277d03dab048e0008b9dacbd633 internal_rate_of_return_after.xlsx

Internal Rate of Return

- Very popular in business for evaluating investment proposals
- Tells you the annual compound interest rate equivalent for an investment

Formulas
=IRR(range): Calculates IRR for a range of consecutive cashflows (assumes re-investment rate is same as initial investment)
=MIRR: Calculates IRR but allows you to specify a separate finance and re-investment rate
- MIRR is more likely to offer you an accurate value than IRR
- One weakness of MIRR is that its re-investment rate is subjective
=XIRR(range, dates): Calculates IRR for non-periodic cashflows

Weaknesses of IRR
- Assumes re-investment rate of return is the same as the initial rate (rarely so)
- Can give multiple answers if you have positive and negative cashflows during investment
- Click here and here to learn more about the weaknesses of IRR

Keyboard shortcuts

CTRL + SHIFT + : Select all cells within data region
SHIFT + : Select an additional cell
F2: Jump inside formula

Next in Formulas and Finance Functions

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