100freespinsnodepositbookofdead| How to calculate various internal rates of return: Formula for calculating internal rate of return

Detailed explanation of the calculation method of Internal rate of return

Internal rate of return (Internal Rate of Return, IRR) is one of the important indicators to evaluate the profitability of investment projects. It represents the discount rate that makes the net present value of the project zero. This article will describe in detail how to calculate the various internal rates of return.

I. basic principles

The internal rate of return is the discount rate when the present value of cash inflows into the project is equal to the present value of cash outflows. To put it simply, it is the rate of return that the income and cost of the investment project reach the equilibrium point without considering the value of time.

II. Calculation formula

The formula for calculating the internal rate of return is as follows:

0 = NPV (IRR) = ∑ (CF_t / (1 + IRR) ^ t)-I

Among them, NPV is the net present value, CF_t represents the cash flow of the t period, IRR is the internal rate of return, t represents the number of periods, and I is the initial investment.

III. Calculation steps

one100freespinsnodepositbookofdead. Determine the cash flow of the project, including cash inflows and outflows.

two100freespinsnodepositbookofdead. Input the cash flow into the internal rate of return formula.

3. Use a numerical solution or its100freespinsnodepositbookofdeadHe optimizes the algorithm to solve the IRR value that makes NPV equal to zero.

4. Compare the calculated internal rate of return with the rate of return expected by investors to judge whether the project is worth investing.

100freespinsnodepositbookofdead| How to calculate various internal rates of return: Formula for calculating internal rate of return

IV. Demonstration of examples

Suppose there is an investment project with an initial investment of 1 million yuan, and the estimated cash flow for the next 5 years is shown in the following table:

Year 1 2 3 4 5 Cash flow (ten thousand yuan)-20 30 40 30 50

According to the above cash flow, we can use the numerical method to calculate the internal rate of return. Suppose we use the IRR function of Excel, and the input parameters are {- 200,30,40,30,50}. The internal rate of return is 22.47%.

Assuming that the expected rate of return of investors is 20%, because the calculated internal rate of return is higher than the rate of return expected by investors, it shows that the project has investment value.

V. matters needing attention

1. When calculating the internal rate of return, you need to ensure the accuracy of the cash flow data.

two。 The internal rate of return is suitable for the evaluation of projects with stable cash flow, and the evaluation results may not be accurate for projects with large cash flow fluctuations.

3. The internal rate of return is only an index of investment project evaluation, which can not completely determine whether a project is worth investing or not. Investors also need to consider it comprehensively.100freespinsnodepositbookofdeadOther factors, such as project risk, market competition and so on.