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Internal Rate of Return

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  • 29-06-2010 12:47pm
    #1
    bipedalhumanoid
    Registered Users Posts: 297 ✭✭


    I am having difficulty trying to understand some of the cases where Internal Rate of Return cannot be calculated.

    My understanding is that you have to provide a negative cash flow for year 0 followed by a series of positive cash flows. However, the following scenario is incalculable in excel...

    0: -100000
    1: 10000
    2: 10000
    3: 10000
    4: 1000
    5: 1000
    6: 1000
    7: 1000
    8: 1000
    9: 1000

    AS IRR can return a negative or positive result, I don't understand why I can't get a result for the above example.

    Also, if I change one of the €1000 cash flows to €10000, I do get a result.

    Any Ideas?


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    #2
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    well with those kind of rounded numbers its pretty easy to calculate in your head.

    the return there is heavily negative btw ;) -24.24% to be precise


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    #3
    bipedalhumanoid
    Registered Users Posts: 297 ✭✭bipedalhumanoid


    D3PO wrote: »
    well with those kind of rounded numbers its pretty easy to calculate in your head.

    the return there is heavily negative btw ;)

    Are you saying it is not incalculable?


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    #4
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    bipedalhumanoid wrote: »
    Are you saying it is not incalculable?

    post the formula you are using

    p.s excel has known issues occasionally with neg irr returns

    p.p.s IRR isnt a great way of measuring property investments in my opinion. (assuming as you posted on the accomadation board thats what your trying to do)


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    #5
    bipedalhumanoid
    Registered Users Posts: 297 ✭✭bipedalhumanoid


    D3PO wrote: »
    post the formula you are using

    p.s excel has known issues occasionally with neg irr returns


    I'm not using a formula. Just excel's IRR function with the cash flows listed above. I'm not really looking for the IRR for those values, I just wanted to understand why I wasn't getting a result. I thought it was a lack of understanding on IRR on my part but it looks like it's actually a bug in Excel, and possible also the .net framework.

    Thanks for your help.


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    #6
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    bipedalhumanoid wrote: »
    I'm not using a formula. Just excel's IRR function with the cash flows listed above. I'm not really looking for the IRR for those values, I just wanted to understand why I wasn't getting a result. I thought it was a lack of understanding on IRR on my part but it looks like it's actually a bug in Excel, and possible also the .net framework.

    Thanks for your help.


    correct there is a bug in the excel irr function that creeps up from time to time when the IRR value is negative


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    #7
    bipedalhumanoid
    Registered Users Posts: 297 ✭✭bipedalhumanoid


    D3PO wrote: »

    p.p.s IRR isnt a great way of measuring property investments in my opinion. (assuming as you posted on the accomadation board thats what your trying to do)

    What do you use? I use a variety of methods to evaluating a property, starting with cash flow, cash on cash return,NPOV,IRR and sometimes MIRR if necessary.


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    #8
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    im not an investor so i dont use anything ;)

    but i thought you were just using IRR and not a variety of methods. if your using a variety then ignore me :p:p


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