Many businesses take cash flows from several sources, such as asset sales or retail revenues, 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. Instead, you can use the XIRR function to calculate the internal rate of return for cash flows that occur at irregular intervals.
- [Lecturer] Many businesses take…cash flows from several sources…such as asset sales to retail revenues…to fund their 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.…If your cash flows come in at irregular intervals,…instead you can use the XIRR function…to handle these irregular cash flows.…I'll demonstrate how to use the XIRR function.…My sample file is IrregularIRRSchedule0307,…and you can find it in the chapter three…folder of the exercise files collection.…
The XIRR function requires two different…sets of values and a third is optional.…The first are the cash flows which I have here…in cells B5 through B12,…and then in cells C5 through C12,…I have the dates on which those…cash flows will occur.…So I'm going to enter in those two values.…The third argument is a guess.…What Excel is going to do is use…the XIRR function to find the interest rate…or rate of return at which…this series of investments returns…
- 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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