Can someone explain to me the difference between annual IRR and exit IRR?

Answer 1

The term IRR is the abbreviation of Internal Rate of Return.

As is evident from the full form the word is related with return on something.

In finance world that 'something' is money invested.

So IRR is the return on your investment.The IRR is the return rate which can be earned on the invested capital, i.e. the yield on the investment.

Mathematically the IRR is defined as any discount rate that results in a net present value of zero of a series of cashflows.

Example:

Year Cash flow
0 -100
1 +120

Calculation of NPV(Net present Value):

i = interest rate in percent
NPV = -100 +120/[(1+i)^1]

Calculation of IRR:
NPV = 0
-100 +120/[(1+IRR)^1] = 0

Annual IRR = 20%(at end of year one)
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Exit IRR is the term used to calculate the IRR at which the investor pulls out of the investment.

It is calculated by the investors to form an exit strategy from an investment.

Exit IRR is calculated on the basis of the actual realized proceeds from investments.It is calculated over the total period of investment till the investor pulls out of investment.

Answer 2

When I have seen these terms used the difference has been this:

While all investments have a corresponding IRR (Internal Rate of Return), for venture capital (VC) or private equity deals (investments that involve an "exit" at a point in the deal) after the VC exits the deal the corresponding IRR from the exit is normally given (e.g. The VC obtained a 30% IRR from the investment exit).

Answer 3

Annual Irr

Answer 4

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