Internal Rate of Return (IRR)

The Internal Rate of Return (IRR) is a financial metric used to evaluate the profitability of an investment. In Microsoft Excel, the IRR function can be used to calculate this easily.

Syntax of IRR in Excel

=IRR(values, [guess])

• values – A range of cells that represent the cash flow series (must contain at least one negative and one positive value).

• guess – [Optional] An estimate for expected IRR (default is 10%).

✅ Example

Let's say you have the following investment:

Year Cash Flow

0 -10000

1 2000

2 2500

3 3000

4 3500

5 4000

Here, the initial investment is -10,000 (cash outflow), and the following are annual cash inflows.

Place these values in Excel:

A B

Year Cash Flow

0 -10000

1 2000

2 2500

3 3000

4 3500

5 4000

Then use this formula:

=IRR(B2:B7)

🔁 Excel will return something like:

IRR = 13.00% (example output)

This means the investment yields an internal rate of return of 13.00% over the period.