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 payments (negative values) and income (positive values) that occur at regular periods.
Syntax
IRR(values,guess)
Values is an array or a reference to cells that contain numbers for which you want to calculate the internal rate of return.
Guess is a number that you guess is close to the result of IRR.
Remarks
IRR is closely related to NPV, the net present value function. The rate of return calculated by IRR is the interest rate corresponding to a 0 (zero) net present value. The following formula demonstrates how NPV and IRR are related:
NPV(IRR(B1:B6),B1:B6)
equals 3.60E-08 [Within the accuracy of the IRR calculation, the value 3.60E-08 is effectively 0 (zero).]
Example
The example may be easier to understand if you copy it to a blank spreadsheet.
Selecting an example from Help
Data | Description |
---|---|
-70,000 | Initial cost of a business |
12,000 | Net income for the first five years |
15,000 | Net income for the first five years |
18,000 | Net income for the first five years |
21,000 | Net income for the first five years |
26,000 | Net income for the first five years |
Formula | Description (Result) |
=IRR(A2:A6) | Investment's internal rate of return after four years (-2%) |
=IRR(A2:A7) | Internal rate of return after five years (9%) |
=IRR(A2:A4,-10%) | To calculate the internal rate of return after two years, you need to include a guess (-44%) |