I'm running a 24 month (period) cash flow scenario with multiple positive and
negative cash flows. When I run a straight IRR analysis for the 24 periods,
I'm getting a 3% IRR. I know this is not correct. Alternatively, if I add
the cash flow for the first 12 months and use that as period 1 and the total
of months 13-24 as the 2nd period, my IRR = 85%. I believe this is closer to
the correct return, but why the huge difference? What am I not doing
correctly?

The difference is that your first rate is compounded monthly, the second rate is
compounded annually.

IRR, like most financial functions calculates the rate for the period of the
payments. In fact, Excel has no idea whether your cash flows are monthly, daily,
quarterly, annually, tri-annually, etc. It just returns a rate which matches the
period of the cash flows.

3% compounded monthly is 42% annually. The difference between that and your 85%
annually will almost certainly be the timing of the cash flows.

--
Regards,
Fred


"Mdyer" wrote in message
...
I'm running a 24 month (period) cash flow scenario with multiple positive and
negative cash flows. When I run a straight IRR analysis for the 24 periods,
I'm getting a 3% IRR. I know this is not correct. Alternatively, if I add
the cash flow for the first 12 months and use that as period 1 and the total
of months 13-24 as the 2nd period, my IRR = 85%. I believe this is closer to
the correct return, but why the huge difference? What am I not doing
correctly?