microsoftarcade| How to calculate the financial internal rate of return-Actual examples of internal rate of return

How to calculate the Financial Internal rate of return-actual case study

Financial internal rate of return (Internal Rate of ReturnMicrosoftarcadeIRR) is an important index to evaluate the profitability of investment projects.MicrosoftarcadeWhich reflects the growth rate of investment project funds This paper will analyze how to calculate IRR in detail through actual cases to help investors better understand and use this index.

1. The basic concept of IRR

Internal rate of return (IRR) refers to the discount rate that makes the net present value (Net Present Value, referred to as NPV) of the investment project zero. In other words, IRR is the annualized rate of return that investors expect from investment projects without considering the value of time. The project is usually considered feasible when the IRR is higher than the expected return of investors.

Second, the steps of calculating IRR

oneMicrosoftarcade. Determine the cash flow of the investment project: including the initial investment and expected return.

twoMicrosoftarcade. Establish the equation: let IRR be r, such that NPV=0, that is, ∑ (cash flow _ t / (1 + r) ^ t) = initial investment.

3. Solving IRR: the value of IRR is obtained by solving the equation by iterative method, Newton method and other numerical methods.

III. Actual case analysis

Suppose a company plans to invest in a new project, the initial investment is expected to be 10 million yuan, the project cycle is 5 years. According to the forecast, the cash inflows of the project in the next five years are 2 million yuan, 3 million yuan, 4 million yuan, 5 million yuan and 6 million yuan respectively.

1. Cash flow statement

Year cash inflow (ten thousand yuan) net cash flow (ten thousand yuan) 0-1000-1000 1 200 200 2 300 3 400 400 4 500 500 5 600 600

two。 Calculate IRR

According to the above cash flow statement, we can establish the equation: ∑ (net cash flow / (1 + r) ^ t) =-1000. Through the numerical calculation method, the IRR is about 20.68%.

3. Result analysis

Assuming that the expected return of investors is 15 per cent, the project is feasible because the calculated IRR (20.68 per cent) is higher than the expected return. Investors can consider investing in the project in order to get a higher return.

IV. matters needing attention

1. In practical application, investors also need to comprehensively evaluate the investment value of the project combined with other financial indicators, such as net present value (NPV), investment payback period (Payback Period) and so on.

two。 For projects with unconventional cash flows, such as those with unconventional benefits or costs, a more complex method may be required to calculate IRR.