Microsoft Office Tutorials and References
In Depth Information
Determine the
INTERNAL RATE OF RETURN
You can use Excel’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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