Understanding the IRR Function
The syntax for the IRR function is as follows: =IRR(values,[guess]) where “values” are the list of values representing a series of cash flows in equal increments like a particular date every month, or monthly. Values can also be cell references or ranges of references. For example, A2:A15 would be the values in the range of cells A2 through A15. The “guess” is an optional argument that you guess is close to your IRR result. If you don’t use this argument, Excel defaults to the value of 0.1 (10%). When using the Guess value, you receive a #NUM error, or the end result isn’t what you expected. But you can always change this value.
Using the IRR Formula in Excel
Your values must contain at least 1 positive number and 1 negative number for the internal rate of return formula to work correctly. Your first negative number will most likely be the initial investment, but could have other negative values in the array. Additionally, you have to make sure you enter your values in the order you want. IRR uses the order of the values to calculate. You must also make sure your array of numbers is formatted as numbers. Text, logical values, and empty cells will be ignored by Excel’s IRR formula.
How to Calculate IRR in Excel
You’ll first want to ensure that your sequence of values for net cash flow in all your entries is in the Number format. To accomplish this, do the following: In the example, the formula would read:
