From the course: Excel: Analyzing and Visualizing Cash Flows

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Calculate internal rate of return

Calculate internal rate of return

From the course: Excel: Analyzing and Visualizing Cash Flows

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Calculate internal rate of return

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- [Instructor] Calculating an investments internal rate of return lets you identify the interest rate at which the future cash flows have a net present value of zero. In other words, your formula tells you the discount rate at which you would break even on a given investment. To demonstrate how to calculate internal rate of return in Excel, I will use the internal rate of return workbook. You can find that in the chapter two folder of the exercise files collection. IRR takes two sets of arguments. The first is a series of cash flows, which I have here in cells B4 through B10 and I have them labeled by period, although those values aren't included in the calculation. The second argument which is optional is a guess. What happens in the background is that internat rate of return, the IRR function, makes a series of guesses as to the discount rate that would result in the cash flows displayed here in B4 through B10 having a net present value of zero. If you don't give it a guess to start…

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