IRR Calculation

Written by:Abraham A.
Location:DCF Analysis

Finance.ThinkAndDone.com provides you an online tool to perform internal rate of return IRR calculation from a series of cash flows. IRR is the internal rate of return from expected future cash flows. Acceptance criteria for IRR method suggest approving or accepting a project if the IRR is higher than the organization's cost of capital; an organization's cost of capital is referred to as WACC which is weighted average of costs an organization must pay to raise the capital. It may not always be possible to calculate IRR and in other instances there may exist multiple IRR values. Regardless of these shortcomings, IRR is widely used capital budgeting method and is the popular method used by a large number of American corporations. The online IRR calculation tool on this page shows you step by step workout for calculations that are performed to calculate internal rate of return. The online IRR calculation tool uses a mathematical techinque called Newton Raphson method to perform the calculations. Many online IRR calculation tools only provide an approximate value for IRR yet this online IRR Calculation tool reports an exact IRR value.

Location: DCF Analysis

IRR Calculation

Developed by:Emma A.
Location:Financial Calculations
type in the authorization code in the box located below:

Results

Newton Raphson Method IRR Calculation
f(x) = -100000(1+i)^0 +35000(1+i)^-1 +35000(1+i)^-2 +35000(1+i)^-3 +35000(1+i)^-4 +35000(1+i)^-5 -10000(1+i)^-6

f'(x) = -35000(1+i)^-2 -70000(1+i)^-3 -105000(1+i)^-4 -140000(1+i)^-5 -175000(1+i)^-6 +60000(1+i)^-7

x0 = 0.1
f(x0) = 27032.7976
f'(x0) = -308156.5046
x1 = 0.1 - 27032.7976/-308156.5046 = 0.187724247987
Error Bound = 0.187724247987 - 0.1 = 0.087724 > 0.000001

x1 = 0.187724247987
f(x1) = 4001.0986
f'(x1) = -222924.8894
x2 = 0.187724247987 - 4001.0986/-222924.8894 = 0.205672439416
Error Bound = 0.205672439416 - 0.187724247987 = 0.017948 > 0.000001

x2 = 0.205672439416
f(x2) = 122.7547
f'(x2) = -209430.5635
x3 = 0.205672439416 - 122.7547/-209430.5635 = 0.20625857484
Error Bound = 0.20625857484 - 0.205672439416 = 0.000586 > 0.000001

x3 = 0.20625857484
f(x3) = 0.1238
f'(x3) = -209008.2146
x4 = 0.20625857484 - 0.1238/-209008.2146 = 0.206259167313
Error Bound = 0.206259167313 - 0.20625857484 = 1.0E-6 < 0.000001

IRR = x4 = 0.206259167313 or 20.63%

Newton Raphson IRR Calculation

type in an initial guess for IRR:  %
type in net cash flows in the space below:

Secant Method IRR Calculation

type in p0 to evaluate f(p0):  
type in p1 to evaluate f(p1):  

Instructions

To perform IRR calculation with this online tool, you need to type in series of net cash flows. Ensure that the cash flows have at least 1 positive amount and at least 1 negative amount, otherwise the IRR Calculator won't be able to produce the required internal rate of return. See the instructions listed below to find IRR with this online tool

  • You have to key in the series of net cash flow each of which is separated by a space such as -100000 35000 35000 35000 35000 35000 -10000
  • Finally a click on the CALCULATE button will result is detailed IRR calculation using Newton Raphson method