I guess the problem is I'm trying to flip around the point of view. Is there
a way to model an IRR to show the benefit of someone receiving that as an
inflow and only paying smaller amounts in the out years?

I have vastly simplfied the scenario, but it is based on a working capital
scenario with the company selling off a large chunk of inventory (the cash
inflow) and doing an oursource scenario that will have a much smaller
incremental cost over the subsequent years.

Any thoughts greatly appreciated



"gcanty" wrote:

The result provided is correct. In order to have a positive result in an IRR
calculation the undiscounted sum of the outflows have to exceed the
undiscounted amount of the initial inflows. The problem here is that the
other party in this transaction is not even recoverying their initial
investment. Conversely, even though the IRR is NEGATIVE you would be very
fortunate if you could get someone to give you $1500 and allow you to get off
with paying you only $1000 back at a rate of $250 per year.

To help illustrate what's going on, keep the annual payments at 250, extend
the number of years you must pay the lender/financier to seven, and measure
the IRR at the end of each year. When the total outflows equal the total
inflows (Year 6) the IRR would be Zero. Only if the payments continued
beyond Year 6 would the IRR become positive.

Similarly increase the annual payments to $500 and observe that the IRR is
zero once the third payment is received (i.e. the total outflows = total
inflows = $1500).

I hope that helps.

"Mark O" wrote:

I have a financial situation where I am receiving a cash inflow first, then
in the next 4 years will only be outflows. How do I properly do an IRR
calculation with this? Or can I even do it?

I can tell the value that comes out of the IRR function is not correct. Is
it as simple as taking the opposite of the IRR value excel gives me?
Something tells me no, but I'm not sure.

Simple example would be

Year 1 - inflow 1500
Year 2 - outflow 250
Year 3 - outflow 250
Year 4 - outflow 250
Year 5 - outflow 250

This tells me IRR is -14.3% which is not correct.

Thanks in advance.