Why doesn't the Internal Rate of Return work for negative cash flows?

Question

Why can't you just discount a negative cash flow at the same discount rate as a positive cash flow? Doesn't the time value of money principal work the same way in reverse? Someone please clue me in on this.

Answer 1

You can't reinvest a negative cash flow, thus the IRR formula fail (it assumes all cash flows are reinvested at the IRR rate). You can calculate the return manually, and come up with an IRR, as you have stated, but it wouldn't work with the true IRR calculations. Thus a calculator or spreadsheet formula will fail.