Calculator IRR No Initial Investment

IRR Calculation:

\[ IRR = \text{Rate where NPV} = 0 \text{ without initial outlay} \]

Internal Rate of Return (IRR):

IRR (decimal):

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1. What is IRR?

The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows equal to zero. It's used to evaluate the profitability of potential investments.

2. How Does the Calculator Work?

The calculator uses the Newton-Raphson method to solve for IRR in the NPV equation:

\[ NPV = \sum_{t=1}^{n} \frac{CF_t}{(1 + r)^t} = 0 \]

Where:

\( CF_t \) — Cash flow at time period t
\( r \) — Internal rate of return (IRR)
\( t \) — Time period

Explanation: The calculator iteratively adjusts the rate until the NPV approaches zero, giving the IRR.

3. Importance of IRR Calculation

Details: IRR helps investors compare the profitability of different investments. A higher IRR generally indicates a more desirable investment.

4. Using the Calculator

Tips: Enter cash flows as comma-separated values (e.g., 100,200,300). Optionally provide an initial guess (default is 0.1 or 10%).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between IRR and ROI?
A: ROI shows total return percentage, while IRR accounts for the time value of money by considering when cash flows occur.

Q2: What is a good IRR value?
A: Generally, an IRR above the cost of capital is good. The higher the IRR, the better, but context matters (industry, risk, etc.).

Q3: Can IRR be negative?
A: Yes, a negative IRR means the investment would lose money.

Q4: What are limitations of IRR?
A: IRR assumes reinvestment at the same rate and can give misleading results with unconventional cash flow patterns.

Q5: Why might the calculator fail to find IRR?
A: Some cash flow patterns have no IRR or multiple IRRs. Try adjusting the initial guess if this occurs.