How to use IRR Calculator-simple tutorials and procedures

IRR (Internal rate of return) is an important index in investment project evaluation.ReplayarcadeThe discount rate that makes the net present value (NPV) of the project zero by calculationReplayarcadeTo evaluate the return on investment of the project This article will introduce the usage and operation steps of IRR calculator in detail.

Before using the IRR calculator, we need to understand the concept of net present value (NPV). The net present value refers to the present value of the future cash inflow of the project minus the present value of the cash outflow. When NPV is greater than 0, the project has investment value; when NPV is less than 0, the project does not have investment value. IRR is the discount rate that makes NPV zero. When we find this discount rate, it means that we have found the rate of return on the project investment.

How to use IRR Calculator

oneReplayarcade. Prepare cash flow data for future phases of the project. These data include the amount of investment, income, cost, etc., usually on an annual basis.

twoReplayarcade. Open the IRR calculator. You can find many free IRR calculators on the Internet, or use the IRR function of spreadsheet software such as Excel to calculate.

3. Enter project cash flow data. In the calculator, enter the initial investment (usually negative), and then enter cash inflows and outflows for each period.

4. Start calculating the IRR. Click the calculate button and the IRR calculator will automatically calculate the internal rate of return of the project.

5. The results of IRR were analyzed. Compare the IRR value with the expected rate of return of investors to judge whether the project has investment value or not.

Example of procedure

Suppose an investment project requires an initial investment of 1 million yuan, and the cash flow in the next five years is as follows:

Year cash flow (ten thousand yuan) 1 20 2 30 3 40 4 30 5 20

Enter these data into the IRR calculator and get an internal rate of return of 20%.

Matters needing attention

1. Ensure that the input data is accurate, and the wrong data will lead to inaccurate calculation results.

two。 For projects with unconventional cash flows (such as large positive and negative changes in cash flow), the IRR calculator may not be able to accurately calculate IRR, so you can consider using other investment evaluation methods.

3. Do not rely too much on IRR indicators, investment decisions need to consider a variety of factors, such as project risk, market environment and so on.