IRR
Calculates the Internal Rate of Return (IRR) for a series of cash flows that occur at regular intervals. IRR represents the annualized effective compounded return rate where the net present value (NPV) of all cash flows equals zero. It's commonly used in investment analysis to evaluate profitability and compare project returns.
Syntax
IRR(cashflows, [guess])
cashflows(Array): A series of payments (negative) and income (positive) values. The first value usually represents the initial investment (negative).guess(Number, optional): An initial estimate of the expected IRR (default = 0.1, or 10%).
Returns
Number – The internal rate of return as a decimal (e.g., 0.12 = 12%).
Examples
Evaluate a startup investment's profitability
IRR(ARRAY(-20000, 5000, 7000, 8000, 9000))Returns ~17.1%, showing the average annual return if the investment performs as projected.
Compare multiple project options
IRR(ARRAY(-10000, 2000, 3000, 4000, 5000))Helps determine which project provides the best rate of return, guiding capital allocation decisions.
Assess cash flow sustainability for real estate investments
IRR(ARRAY(-150000, 20000, 25000, 30000, 35000, 40000, 45000))Returns the annual yield factoring in rental income and future resale gain.
Common Mistakes & Tips
The first value in cashflows should typically be negative (investment).
If cash flows alternate between positive and negative multiple times, IRR might return multiple results or fail to converge.
Use NPV() (if available) to cross-check results: at IRR, NPV = 0.
If IRR doesn't converge, adjust the guess parameter closer to expected results.
See Also
FV · PMT · CUMIPMT