2006-10-31 23:07:40 · 2 answers · asked by sanfar14312 1 in Business & Finance ➔ Investing
it the rate of return that make the npv = 0.
Eg:
Initial investment (cfo) = -500
CF1 = 300
CF2 = 400
CF3 = 400
0 = -500 + 300/ (1 + irr) + 400/ (1+irr)^2 + 400 / (1 + irr)^3
The longer the cash flow the more difficult to calculate, so you need a financial calculator....
check this out: http://www.datadynamica.com/IRR.asp
2006-10-31 23:19:48 · answer #1 · answered by corey j 1 · 1⤊ 0⤋
The person above let out one important thing the final payment.
So I will give you method using discount tables with final payment too. If a is the initial investment, c is the cash flows which are annuity meaning equal for every year and K the final payment or liquidation cash flow from sale of the asset, then
a = c(pvifa)irr,years+ K/c x c(pvifa)irr, years
pvifa is present value interest factor of an annuity. Annuity is paid at the end of the year. Now this is a simple equation and you can solve it to find pvifa. Now look for the irr that matches the pvifa got in the discount table.
Eg; If pvifa = x, and see which pvifa is before it and after it call it pvifa1 and pvifa2. Now, irr=
(pvifa-pvifa1)/(pvifa2-pvifa1). Add this to the r value of pvifa1.
2006-11-01 03:24:11 · answer #2 · answered by Mathew C 5 · 0⤊ 1⤋