Transcripts for the above video clip:

Internal Rate of Return Calculator

Thank you for downloading our simple Internal Rate of Return (IRR) calculator. If you are watching the video clip and you haven't downloaded the Excel File just click on the appropriate button ( Download ). As indicated in the file please feel free to email the file to friends that may benefit. Another thing, if you are using Excel 2003, and if your not sure, if your Excel looks like this it is Excel 2007, if it looks like the older version then its probably Excel 2003. If you have Excel 2003 you need to load the Analysis toolpack and you can do that by clicking on this link and watching the video clip of how to do it.

Lets just show you quickly how to use the IRR calculator. If you go a little bit down, you will see there is a section here in white and this is where you are allowed to put inputs. As you can see I've already put some inputs in . In this example what we've got is that on the 1st of January 2009, and this is where we enter the dates of cash flow events , $100 was put into this investment lets say. At the end of that same year $9 was received out of it, another $9 a year later, and so on, until 2013, at which time we get our $9 back plus the original amount. The IRR Calculator tells you that that is an IRR of 9%. On the side here you will see that this automatically adds up the cash outflows and inflows. So this flow of cash results in an IRR of 9%.

Now lets try another set of numbers. So I'm going to still say we've made an investment of $100, but I'm going to remove this and what I'm going to say is we receive nothing in these years , however, at 31 December 2013, we receive $183.86 and when you click you will see that this profile also gives you 9%. So this is the equivalent of a 9% IRR. Now in this calculator you don't need to capture these items all you need to do is put the correct date and when the outflow foes and you could then put the final date and inflow and it will give you the same answer.

Just one more example. Again we have $100 leaving us, lets delete those, and now what we have is at the end of year 1 we do not get anything back, at the end of year 2 we get $50 back, year 3 nothing, year 4 nothing and then we get $89.11 in year 5. Guess what, that profile also generates a 9% IRR.

So you can see how different profiles can result in the same IRR and you can use this IRR calculator whether to make an investment or not and whether loans are costing you too much or too little