Learn How to Calculate IRR - Tutorial

How to Calculate Internal Rate of Return - Definition, Formula and Example

Definition:

The rate of return utilized to estimate the profit earned from the investments is the Internal Rate of Return [IRR] or Economic Rate of Return [ERR]. Net present value of the transferred amount is converted to zero by the 'rate of return' that is, IRR on any investment.

Formula:

Where,
C0 = Initial Investment Ci = Cash Flow T = Number of years

Example:

Total amount invested is Rs 70000. Net income earned for first year is Rs 12000. Net income received for second year is Rs 15000. Net income earned for third year is Rs 18000. Net income received for fourth year is Rs 21000. Net income for the fifth year is Rs 26000. Find out IRR from the given values?.

Given,

Invested Amount = 70000 Net Income derived 1st yr - 12000 2nd yr - 15000 3rd yr - 18000 4th yr - 21000 5th yr - 26000

To Find,

Internal Rate of Return

Solution:

IRR = 8.66 %

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