Microsoft Office Tutorials and References

In Depth Information

Determine the

INTERNAL RATE OF RETURN

You can use Excelâ€™s Internal Rate of Return (
IRR
)

function to calculate the rate of return on an

investment. When using the
IRR
function, the cash

flows do not have to be equal, but they must occur at

regular intervals. As an example, you make a loan of

$6,607 on January 1, year 1. You receive payments

every January 1 for four succeeding years. You can

use the
IRR
function to determine the interest rate

you receive on the loan.

Your loan of $6,607 is a cash outflow, so you enter it

as a negative number. Each payment is a cash inflow,

so you enter them as positive numbers. When using

the Internal Rate of Return function, you must enter

at least one positive and one negative number.

Optionally, you can provide, as the second argument,

your best-guess estimate as to the rate of return.

The default value, if you do not provide an estimate,

is .10, representing a 10 percent rate of return. Your

estimate merely gives Excel a starting point at which

to calculate the
IRR
.

1

Type the series of projected cash

flows into a worksheet.

3

2

Click in the cell in which the

result appears.

3

Click the Insert Function button.

1

2

l
The Insert Function dialog box

appears.

4

Type
IRR
.

5

Click Go.

6

Double-click IRR.

4

5

6

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