Once you solve this equation, you get the IRR, where the net present value NPV is 0. If the IRR is above zero, then you can safely say that the project will be able to generate income.
To calculate IRR in Microsoft Excel, an iterative method is used. Starting from the result, IRR repeats the calculations until the result is within 0.00001%.
Microsoft Excel provides the user with 3 functions to calculate the internal rate of return:
IRR is the most commonly used function that is used in the process israel cell phone number list of calculating the IRR for a series of cash flows that occur at regular intervals.
XIRR - finds the IRR for a series of cash flows occurring at irregular intervals. Since the calculation process takes into account the exact dates of payments, this function provides higher accuracy of calculations.
MIRR − returns the modified internal rate of return, which is a version of IRR that takes into account both the cost of borrowing and the compound interest earned by reinvesting positive cash flows.
When is IRR used?
It is impossible to present all the cases of application of IRR. For example, IRR is used to determine the interest rate on leasing, since the total cost is often specified in the contract. The entrepreneur is responsible for dividing the contribution into interest and capital parts. It is worth reminding that determining the amount of deductible expenses is a very responsible task.
Internal rate of return is a practical solution. IRR has a wide range of uses, but it should be remembered that internal rate of return is not always the optimal indicator for evaluating an investment project.