Microsoft Office Tutorials and References
In Depth Information
return after 5 years. If you want to figure out the internal rate of return,
use the IRR function.
IRR fails to take into account that the money earned in Year 1 could
start generating interest if invested in a CD. To calculate a rate of
return including the reinvestment of profits, use MIRR, which is de-
scribed in the following section.
One critical difference exists between IRR and NPV: In the NPV function, the
initial investment in the business is notincluded in the list of arguments. In
the IRR function, the initial investment in the business needs to be included as
the first cash flow. Because this is money paid for the business, it should
be negative.
The algorithm behind the IRR function is new and more accurate in Excel
2013. Be aware that Excel 2007 and Excel 2013 might produce different
results for some uses of IRR.
The IRR function returns the internal rate of return for a series of cash
flows, represented by the numbers in values. These cash flows do not have
to be even, as they would be for an annuity. However, the cash flows must
occur at regular intervals, such as monthly or annually. The internal rate
of return is the interest rate received for an investment, consisting of pay-
ments (negative values) and income (positive values) that occur at regular
The IRR function takes the following arguments:
values This is an array or a reference to cells that contain num-
bers for which you want to calculate the internal rate of return.
valuesmust contain at least one positive value and one negative
value to calculate the internal rate of return. IRR uses the order of
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