Microsoft Office Tutorials and References

In Depth Information

**Using the IRR Function**

Figure 12-13:
Using the IRR function to calculate geometric average growth.

Checking results

Figure 12-14 shows a worksheet that demonstrates the relationship between IRR, NPV, and PV by

verifying the results of some calculations. This verification is based on the definition of IRR: The

rate at which the sum of positive and negative discounted flows is 0.

Figure 12-14:
Checking IRR and NPV using sum of PV approach.

The NPV is calculated in cell B16:

=NPV(D3,B7:B14)+B6

The internal rate of return is calculated in cell B17:

=IRR(B6:B14,–90%)