IRR function

Returns the internal rate of return for a series of cash flows represented by the numbers in values. These cash flows do not have to be even, as they would be for an annuity. However, the cash flows must occur at regular intervals, such as monthly or annually. The internal rate of return is the interest rate received for an investment consisting of payments (negative values) and income (positive values) that occur at regular periods.

Syntax

IRR(values,guess)

Values     is an array or a reference to cells that contain numbers for which you want to calculate the internal rate of return.

  • Values must contain at least one positive value and one negative value to calculate the internal rate of return.
  • IRR uses the order of values to interpret the order of cash flows. Be sure to enter your payment and income values in the sequence you want.
  • If an array or reference argument contains text, logical values, or empty cells, those values are ignored.

Guess     is a number that you guess is close to the result of IRR.

  • Microsoft Excel uses an iterative technique for calculating IRR. Starting with guess, IRR cycles through the calculation until the result is accurate within 0.00001 percent. If IRR can't find a result that works after 20 tries, the #NUM! error value is returned.
  • In most cases you do not need to provide guess for the IRR calculation. If guess is omitted, it is assumed to be 0.1 (10 percent).
  • If IRR gives the #NUM! error value, or if the result is not close to what you expected, try again with a different value for guess.

Remarks

IRR is closely related to NPV, the net present value function. The rate of return calculated by IRR is the interest rate corresponding to a 0 (zero) net present value. The following formula demonstrates how NPV and IRR are related:

NPV(IRR(B1:B6),B1:B6) equals 3.60E-08 [Within the accuracy of the IRR calculation, the value 3.60E-08 is effectively 0 (zero).]

Example

The example may be easier to understand if you copy it to a blank worksheet.

ShowHow to copy an example

  • Create a blank workbook or worksheet.
  • Select the example in the Help topic.

 Note   Do not select the row or column headers.

Selecting an example from Help

Selecting an example from Help
  • Press CTRL+C.
  • In the worksheet, select cell A1, and press CTRL+V.
  • To switch between viewing the results and viewing the formulas that return the results, press CTRL+` (grave accent), or on the Formulas tab, in the Formula Auditing group, click the Show Formulas button.
 
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A B
Data Description
-70,000 Initial cost of a business
12,000 Net income for the first year
15,000 Net income for the second year
18,000 Net income for the third year
21,000 Net income for the fourth year
26,000 Net income for the fifth year
Formula Description (Result)
=IRR(A2:A6) Investment's internal rate of return after four years (-2%)
=IRR(A2:A7) Internal rate of return after five years (9%)
=IRR(A2:A4,-10%) To calculate the internal rate of return after two years, you need to include a guess (-44%)
 
 
Applies to:
Excel 2007