

What is the internal rate of return (IRR) and how does it help? 



The Internal Rate
of Return or IRR, is a measure of your investment performance, and is
expressed as percent return per annum. The IRR returns the internal
rate of return for a series of cash flows represented by the numbers in
values. These cash flows do not have to be even. However, the cash
flows must occur at regular intervals, such as monthly, halfyearly or
annually. Let's say, for example, you put 800 units of money into a
bank.The internal rate of return is the interest rate received for an
investment consisting of payments (negative values) and income
(positive values) that occur at regular periods. As you can observe in
the training video the internal rate of return is about 27%.
Now if the business or individual had made the
investment in a machine or a computer and attained a return yearly
of 3800 units the internal rate of return would have been a
whopping
480%.
Therefore, based on the domain knowledge of the business and use of the
IRR function you could decide whether investing the money in a new
project or putting the money in the bank would be financially more
rewarding. While performimg the calculations using the IRR function you
need to ensure:
The syntax for IRR calculations is: IRR(values,guess)
Note: IRR is closely related to NPV, the net present value function. The rate of return calculated by IRR is the interest rate corresponding to a 0 (zero) net present value.
Reference: 






