Calculating an investment’s internal rate of return enables you to identify the interest rate at which the investment future cash flows have a net present value of zero. In other words, your formula tells you the discount rate at which you would break even on a given investment. If the IRR formula returns a value greater than the interest rate of risk-free investments, you should take the plunge.
- [Instructor] Calculating an investment's…internal rate of return enables you to identify…the interest rate at which the investment's future…cash flows have a net present value of zero.…In other words,…your formula tells you the discount rate…at which you would break even on a given investment.…If the IRR formula returns a value greater than…the interest rate generated by risk-free investments,…you should take the plunge.…If not, then you should probably pass on the opportunity.…In this movie I will show you…how to calculate internal rate of return.…My sample file is IRR_03_06,…which you can find in the Chapter 3 folder…of your exercise files collection.…
This workbook contains two examples of calculating IRR,…and I wanted to show the difference…that a $20,000 return would make.…If we look at the cash flows for the first investment,…we see here in cell A6 that we have initial cash flow…out of $200,000, so that's a negative $200,000.…And then for years one through four…we get $40,000,…and then in the final year, year five,…
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- Recall what the type argument is used to determine when using the PMT function.
- Identify what the M stands for in the ACCRINTM function.
- Name the accounting rules used by the AMORDEGRC function to assign a depreciation coefficient to an asset.
- Recall what internal rate of return generated by the IRR function should be measured against to determine if it is a good investment.
- List the three regular intervals that coupon bonds pay interest at.
- Determine the function that provides a more conservative bond evaluation compared to the DURATION function.
- Explain what the RECEIVED function shows.
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Analyzing Simulation Results
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