Internal Rate of Return

bipedalhumanoid

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?

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

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?

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)

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.

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

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.

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