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XIRR: Calculating internal rate of return for irregular cash flows

From: Excel 2010: Financial Functions in Depth

Video: XIRR: Calculating internal rate of return for irregular cash flows

Many businesses use cash flows from several sources to fund other investments. These revenues don't always come in on a regular monthly or annual schedule so you can't use the IRR function to calculate internal rate of return. However, you can use the XIRR function to calculate the internal rate of return for cash flows that occur at irregular intervals. The XIRR function has three arguments. The first is the cash flows themselves, so we have those in cells B5 to B12.

XIRR: Calculating internal rate of return for irregular cash flows

Many businesses use cash flows from several sources to fund other investments. These revenues don't always come in on a regular monthly or annual schedule so you can't use the IRR function to calculate internal rate of return. However, you can use the XIRR function to calculate the internal rate of return for cash flows that occur at irregular intervals. The XIRR function has three arguments. The first is the cash flows themselves, so we have those in cells B5 to B12.

The next are the dates when those cash flows occur and those are in cells C5 to C12. Now the third and final argument is your guess at the internal rate of return and I have it here in cells C2. Excel uses this as a basis for its calculations because it goes through iteration to find the internal rate of return for these cash flows. If you leave the guess argument blank, Excel guesses 10% and that's good in most cases. I just put it in here as 5% to give you a visual aid of what it would look like when we put it into the formula.

Okay, now I'm going to click back in cell C15 and create the XIRR function. So it's =xirr( and then the values are in cells B5 to B12, the dates of those cash flows are in C5 to C12, and then my guess at the internal rate of return is in cell C2. Type a right parenthesis to close out the formula. Everything looks good and press Tab. And when I do, I see that the internal rate of return is about 6 and a half percent.

Whenever you need to evaluate the internal rate of return of an investment for the cash flows occur at irregular intervals, use the XIRR function. If the cash flows occur at regular intervals, then you can use IRR.

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This video is part of

Image for Excel 2010: Financial Functions in Depth
Excel 2010: Financial Functions in Depth

52 video lessons · 13335 viewers

Curt Frye
Author

 
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  1. 2m 11s
    1. Welcome
      1m 6s
    2. Using the exercise files
      36s
    3. Disclaimer
      29s
  2. 28m 32s
    1. PMT: Calculating a loan payment
      3m 31s
    2. PPMT and IPMT: Calculating principal and interest per loan payment
      4m 18s
    3. CUMPRINC and CUMIPMT: Calculating cumulative principal and interest paid between periods
      4m 30s
    4. ISPMT: Calculating interest paid during a specific period
      2m 13s
    5. EFFECT and NOMINAL: Finding nominal and effective interest rates
      3m 31s
    6. ACCRINT and ACCRINTM: Calculating accrued interest for investments
      4m 15s
    7. RATE: Discovering the interest rate of an annuity
      2m 41s
    8. NPER: Calculating the number of periods in an investment
      3m 33s
  3. 19m 5s
    1. SLN: Calculating depreciation using the straight-line method
      1m 48s
    2. DB: Calculating depreciation using the declining balance method
      3m 10s
    3. DDB: Calculating depreciation using the double-declining balance method
      3m 20s
    4. SYD: Calculating depreciation for a specified period
      2m 13s
    5. VDB: Calculating declining balance depreciation for a partial period
      3m 24s
    6. AMORDEGRC: Calculating depreciation using a depreciation coefficient
      2m 27s
    7. AMORLINC: Calculating depreciation for each accounting period
      2m 43s
  4. 22m 33s
    1. FV: Calculating the future value of an investment
      2m 48s
    2. FVSCHEDULE: Calculating the future value of an investment with variable returns
      2m 21s
    3. PV: Calculating the present value of an investment
      2m 6s
    4. NPV: Calculating the net present value of an investment
      3m 17s
    5. IRR: Calculating internal rate of return
      2m 33s
    6. XNPV: Calculating net present value given irregular inputs
      2m 32s
    7. XIRR: Calculating internal rate of return for irregular cash flows
      1m 48s
    8. MIRR: Calculating internal rate of return for mixed cash flows
      2m 2s
    9. DISC: Calculating the discount rate of a security
      3m 6s
  5. 24m 12s
    1. COUPDAYBS: Calculating total days between coupon beginning and settlement
      3m 2s
    2. COUPDAYS: Calculating days in the settlement date's coupon period
      2m 48s
    3. COUPDAYSNC: Calculating days from the settlement date to the next coupon date
      3m 1s
    4. COUPNCD: Calculating the next coupon date after the settlement date
      2m 43s
    5. COUPNUM: Calculating the number of coupons between settlement and maturity
      2m 55s
    6. COUPPCD: Calculating the date of a coupon due immediately before settlement
      3m 4s
    7. DURATION: Calculating the annual duration of a security
      3m 20s
    8. MDURATION: Calculating the duration of a security using the modified Macauley method
      3m 19s
  6. 28m 43s
    1. DOLLARDE and DOLLARFR: Converting between fractional prices and decimal prices
      2m 36s
    2. INTRATE: Calculating the interest rate of a fully invested security
      2m 50s
    3. RECEIVED: Calculating the value at maturity of a fully invested security
      2m 46s
    4. PRICE: Calculating the price of a security that pays periodic interest
      3m 19s
    5. PRICEDISC: Calculating the price of a discounted security
      2m 48s
    6. PRICEMAT: Calculating the price of a security that pays interest at maturity
      1m 57s
    7. TBILLEQ: Calculating the bond-equivalent yield for a Treasury bill
      1m 50s
    8. TBILLPRICE: Calculating the price for a Treasury bill
      1m 31s
    9. TBILLYIELD: Calculating the yield of a Treasury bill
      1m 41s
    10. YIELD: Calculating the yield of a security that pays periodic interest
      2m 59s
    11. YIELDDISC: Calculating the annual yield for a discounted security
      2m 9s
    12. YIELDMAT: Calculating the annual yield of a security that pays interest at maturity
      2m 17s
  7. 12m 1s
    1. ODDFPRICE: Calculating the price of a security with an odd first period
      3m 17s
    2. ODDFYIELD: Calculating the yield of a security with an odd first period
      3m 3s
    3. ODDLPRICE: Calculating the price of a security with an odd last period
      2m 44s
    4. ODDLYIELD: Calculating the yield of a security with an odd last period
      2m 57s
  8. 1m 5s
    1. Additional resources
      1m 5s

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