Return of Principal and IRR
 

When calculating Internal Rate of Return (IRR) for a stock investment,
should the year 3 figure when you sell the stock include the return of
principal as part of the year 3 cash stream)?

Example, you buy stock today for $8, and have three years of dividends of
$1.88/year. In year three you sell the stock for $20. Is the array that
IRR takes as input:

$8 // stock price
$1.88 // year one dividend
$1.88 // year two dividend
$21.88 // $20 sale price + $1.88 year three dividend

--
Will

Return of Principal and IRR
 

Yes, this is the correct cash flow stream. Just remember that the initial
cash flow is -8.00, as it was money paid out. The remaining three are money
received.

Regards,
Fred.

"Will" wrote in message
...
When calculating Internal Rate of Return (IRR) for a stock investment,
should the year 3 figure when you sell the stock include the return of
principal as part of the year 3 cash stream)?

Example, you buy stock today for $8, and have three years of dividends of
$1.88/year. In year three you sell the stock for $20. Is the array
that
IRR takes as input:

$8 // stock price
$1.88 // year one dividend
$1.88 // year two dividend
$21.88 // $20 sale price + $1.88 year three dividend

--
Will