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IRR calculation the long way

IRR calculation the long way - Microsoft Excel Tutorial

From the course: Investment Evaluation

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IRR calculation the long way

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- Okay, remember, IRR or Internal Rate of Return is simply the discount rate that when applied to a project's expected cash flow will result in an NPV of zero. Take a look at the simple NPV formula again. When we're solving for IRR, we're simply solving for that lower case r. Remember, we have to get the NVP equal to zero. So when we solve this thing by hand, we have to fine tune it until we get it just right. What I mean by that is that we'll have to just plug in discount rates to figure out which one will bring the NPV closest to zero. I think the best way to show this is just to do an example with our good buddy Kevin. Let's imagine that Kevin is about to do a major renovation on a subdivision of homes. To get the machinery and the materials that he needs, he's gonna drop a million dollars. So, at times zero, he has a negative cash flow of one million. Now instead of getting one lump sum payment, he's worked out an agreement with the client to get paid annually over the next four…

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