Problems with IRR Function
 

I have cash flows for an investment as follows:

Initial Investment: -$8
Year 1: +$1.88
Year 2: +$1.88
Year 3: -$1.12

When Year 3 is positive the IRR on the range of four values works fine.
When Year 3 is negative - as in the above example - IRR gives #NUM error.
Why is this?

Also, why does IRR require you to supply a guess for year 3 if no value is
supplied?

--
Will

Problems with IRR Function
 

So you invested $8, and received $1.88 x 2 back. This is a -38% rate of
return. Rather than cut your losses, you chose to invest *another* $1.12 in
year 3. Why? Basically, IRR is telling you that was such a dumb move, it
can't calculate the rate, because there is no return on the $1.12.

IRR does not require that you guess a value for year 3. In fact, if you want
the correct calculations, you need to enter correct values, not guesses. If
there was no return in year 3, enter $0. If the investment was only over 2
years, then feed only Years 0, 1 and 2 to IRR. It will do the calculations
when you give it proper data.

Regards.
Fred.


"Will" wrote in message
...
I have cash flows for an investment as follows:

Initial Investment: -$8
Year 1: +$1.88
Year 2: +$1.88
Year 3: -$1.12

When Year 3 is positive the IRR on the range of four values works fine.
When Year 3 is negative - as in the above example - IRR gives #NUM error.
Why is this?

Also, why does IRR require you to supply a guess for year 3 if no value is
supplied?

--
Will