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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 |
#2
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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 |
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