IRR function returns the internal rate of return of a group of cash flows expressed in numerical value. These cash flows do not need to be balanced, but as annuities, they must be generated periodically, such as monthly or yearly. Internal rate of return is the rate of return on investment, including regular payment (negative value) and regular return (positive value).
Generally speaking, the project is feasible when the internal rate of return is greater than or equal to the benchmark rate of return. Annual cash flow of investment projects
The sum of discounted values is the net present value of the project, and the discount rate when the net present value is zero is the internal rate of return of the project. In the project economic evaluation, according to the different levels of analysis, the internal rate of return can be divided into financial internal rate of return (FIRR) and economic internal rate of return (EIRR).
At present, investment methods such as stocks, funds, gold, real estate and futures have been familiar and used by many financial managers. However, many people's understanding of the effectiveness of investment is limited to the absolute amount of income, lacking scientific judgment basis. For them, the internal rate of return indicator is an indispensable tool.
Internal rate of return calculation steps
(1) On the basis of calculating the net present value, if the net present value is positive, the higher discount rate in the net present value calculation should be adopted for calculation until the calculated net present value is close to zero.
(2) Continue to increase the discount rate until the net present value is negative. If the negative value is too large, reduce the discount rate, and then calculate the negative value close to zero.
(3) According to the discount rate of adjacent positive and negative NPV close to zero, the internal rate of return is obtained by linear interpolation.
Internal rate of return (IRR): a macro conceptual indicator, usually understood as the ability of project investment income to resist currency depreciation and inflation. For example, the internal rate of return is 65,438+00%, which means that the project can bear the maximum currency depreciation of 65,438+00% or inflation of 65,438+00% every year during its operation.
At the same time, the internal rate of return also indicates the ability to resist risks during the project operation. For example, the internal rate of return is 10%, which means that the maximum risk that the project can bear every year during the operation is 10%. In addition, if the project needs loans, the internal rate of return can represent the maximum allowable interest rate. If the loan interest is included in the project economic accounting, it means the maximum floating value of the loan interest in the future project operation.