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Advanced Excel Financial - IRR Function
Description
The IRR function 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, as they would be for an annuity. However, the cash flows must occur at regular intervals, such as monthly or annually.
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.
Syntax
IRR (values, [guess])
Arguments
Argument | Description | Required/ Optional |
---|---|---|
Values | An array or a reference to cells that contain numbers for which you want to calculate the internal rate of return. Values must contain at least one positive value and one negative value to calculate the internal rate of return. IRR uses the order of values to interpret the order of cash flows. Be sure to enter your payment and income values in the sequence you want. If an array or reference argument contains text, logical values, or empty cells, those values are ignored. |
Required |
Guess | A number that you guess is close to the result of IRR. Microsoft Excel uses an iterative technique for calculating IRR. Starting with guess, IRR cycles through the calculation until the result is accurate within 0.00001 percent. If IRR can't find a result that works after 20 tries, the #NUM! error value is returned. In most cases you do not need to provide guess for the IRR calculation. If guess is omitted, it is assumed to be 0.1 (10 percent). If IRR gives the #NUM! error value, or if the result is not close to what you expected, try again with a different value for guess. |
Optional |
Notes
IRR is closely related to NPV, the net present value (NPV) Function. The rate of return calculated by IRR is the interest rate corresponding to a 0 (zero) net present value. The following formula demonstrates how NPV and IRR are related −
NPV (IRR (A2:A7),A2:A7) equals 1.79E-09
[Within the accuracy of the IRR calculation, the value is effectively 0 (zero).]
If the specified values array does not contain at least one negative and at least one positive value, IRR returns #NUM! error value.
If the calculation failed to converge after 20 iterations, IRR returns #NUM! error value.
Applicability
Excel 2007, Excel 2010, Excel 2013, Excel 2016