### IRR Formula

To calculate Internal Rate of Return using the IRR formula in Excel, you need a series of periodic cash flows like that shown in the figure below.

The IRR can then be calculated using the following formula, with 0.1 being the initial guess at the rate:

```=IRR(values,guess)
=IRR(B2:B6,0.1)```

The IRR formula requires at least one negative and one positive value. Normally, the negative value at t=0 represents the initial investment. The future cash flows can be negative or positive, but they need to be periodic (occuring at t=1, t=2, t=3, etc). If you have non-periodic cash flows, you can use the XIRR formula.

Tips For Excel said...

top tip. Get asked this all the time in my job.

Hairunnisak Hassan said...

how to calculate IRR without using the formula given in excel?

Muhammed eLaithy said...

For Example; suppose that there is a project costs \$10 million today, and will provide a \$15 million payoff three years from now, we use the FV of a single-sum formula and solve for r to compute the IRR.

IRR = (FV/PV)1/N -1 = (15 million/10 million)1/3 - 1 = (1.5) 1/3 - 1 = (1.1447) - 1 = 0.1447, or 14.47%

In this case, as long as our hurdle rate is less than 14.47%, we green light the project.