Internal Rate of Return (IRR) Formula

Internal Rate of Return
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Internal Rate of ReturnFormula

IRR = L + (Ne/Ne - Nh) x (H-L)

where L = lower discount rate
H= higher discount rate
Ne= NPV at lower discount rate
Nh= NPV at higher discount rate.

  Tyrone Skogstrom, Management Consultant, Sweden
 

Internal Rate of Return Formula in MS Excel

Since most if us use Excel:
Example = IRR(A2:A4,-10%)
=IRR(values; [guess])
The IRR function syntax has the following arguments:
- Values Required. An array or a reference to cells that contain numbers for which you want to calculate the internal rate of return. Values must contain at least one positive value and one negative value to calculate the internal rate of return. IRR uses the order of values to interpret the order of cash flows. Be sure to enter your payment and income values in the sequence you want.
- Guess Optional. A number that you guess is close to the result of IRR.
Microsoft Excel uses an iterative technique for calculating IRR. Starting with guess, IRR cycles through the calculation until the result is accurate within 0.00001 percent. If IRR can't find a result that works after 20 tries, the #NUM! Error value is returned.
In most cases you do not need to provide guess.

 
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