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"Internal Rate of Return provides the interest rate return of a project's lifetime of cash flows."
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When calculating internal rate of return you can use the provided calculator on your series of cash flows. The IRR formula is built into the calculator. The actual IRR formula is "If NPV = 0 then IRR = Discount Rate" or stated in words; when the NPV is equal to zero, then the IRR is equal to the discount rate." |
You will see two series of cash flows. Each series of cash flows support the IRR result at the bottom. To obtain an internal rate of return for your cash flows, you need to supply the actual cash flows from your project. Be sure to clear out the numbers to zero from the rate of return calculator for the years not needed. The year column can be changed by just changing the first year.
NPV(Net Present Value) calculations require you to provide an interest rate. IRR(Internal Rate Of Return) calculators tell you what the
interest rate is, based on the actual cash flows. Many people find that the IRR is more intuitive. Knowing what it is for your project cash
flows is kind of like knowing the interest rate on your savings account. Use the above IRR software to find your projects rate of return.
Listed below are a few possible applications that you might use this economic analysis software for:
Once you have finished calculating internal rate of return for each of your projects, you can make a rational decision about which project is most economical for your situation. Warning! The IRR found may not be valid if the cash flows swing back and forth from positive to negative values. It is possible to have more than one answer in that case. |
Note: This internal rate of return calculator is often simply refereed to as an irr calculator.
