Calculate IRR in Microsoft Excel  Step by Step Guide ▷ 2020

exist different ways to analyze if an investment project is favorable or not. Within those methods You can find the one who studies the Internal Rate of Return or IRR.

To calculate this rate it is necessary to do it by computer methods, so the use of Excel is ideal to find out if the opportunity cost is lower or not.

Next, we will teach you all the information related to this rate So you can become an expert investor using a spreadsheet. Further, We will show you the guide you must do to obtain, in a simple way, the IRR.

What is the IRR and what does it reflect on the finances of a company or business?

To IRR, or internal rate of return, it can be defined in many ways. For example, is the rate of return or discount that makes an investment project have a Net Present Value equal to zero. It can also be defined in a way geometric saying that it is the average of the payments obtained in the future.

For one The company or investor is represented by the IRR as the opportunity cost. That is, when you decide invest in a certain project other future earnings or returns are set aside, which have a rate of return.

The IRR then, it is the measure that is used to compare it with the opportunity cost. Therefore, if the IRR is greater than that cost, the project is financially viable.

Steps to calculate IRR in a Microsoft Excel spreadsheet

Steps to calculate IRR in a Microsoft Excel spreadsheet

To calculate the internal rate of return of an investment project you will have to follow these steps:

  • Enter current value, periodic returns and future value that the project will have.
  • Then click on the tab “Formulas” and look for the group “Function library”.
  • Click on the tool “Financial”.
  • Search “TIR” and click on it.
  • It will open a tab in which you will have to choose the investment flow of the project.
  • Then you should choose the estimated value. If you do not enter it, the system will consider the 10%.
  • When you have finished click on “To accept”.

You must bear in mind that the present value or disbursement really be with a negative sign because it is an output that you have in the project. If you don’t do this the function will return the result “#NUM!”.

Besides, the IRR will always be positive. So if you enter returns that are not correct or the project has a NPV (Net Present Value) negative, the formula will return error.

If you have any questions, leave them in the comments, we will answer you as soon as possible, and it will surely be of great help to more members of the community. Thank you! 😉

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