Hi there!
The main difference between the IRR function and the rate function in Excel is that:- The IRR function calculates the internal rate of return for a stream of cash flows.
- The rate function calculates the periodic interest rate for an investment based on its beginning and ending values.
In an LBO model, you would typically use the
IRR function to calculate the internal rate of return for the cash flows generated by the investment. This is because the IRR function takes into account the timing and magnitude of each cash flow, which is important in determining the overall return on investment.
On the other hand, the
rate function is typically used to calculate the periodic interest rate for an investment, such as a bond or loan. This function is useful for determining the interest rate that is being earned or paid on an investment, but it does not take into account the timing or magnitude of cash flows.
In summary, if you are trying to calculate the overall return on investment for an LBO model, you should use the
IRR function. If you are trying to calculate the periodic interest rate for an investment, you should use the
rate function.