Internal rate of return

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 October 2017 I am trying to calculate IRR . But error is coming. Any one can guide?

Year Cash Flow
0 -450000
1 50000
2 50000
3 50000
4 50000
5 50000
5 50000
7 50000
8 50000
9 50000
10 50000
11 0
12 0
13 -450000
IRR #DIV/0!

Amol S Joglekar

Amol S Joglekar (Expert)
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20 October 2017 what error you are getting? Can you please elaborate?

Ashiwini Ballodia

Ashiwini Ballodia (Expert)
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20 October 2017 There will be -ve IRR because of cash outflow if 4.5 L in 13 year. As per me you had made a mistake because how come a project ends with cash outflow . Pls check you sum

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Amol S Joglekar

Amol S Joglekar (Expert)
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20 October 2017 did you try with a rate of interest of 1.963 per annum, compounded annually?

Ashiwini Ballodia

Ashiwini Ballodia (Expert)
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20 October 2017 @ Amol Sir 1.963% will be IRR if there is no Cash outflow in 13th Year, if you see the sum there is cash outflow of 4.5 L in 13 year

Querist : Anonymous

Querist : Anonymous (Querist)

20 October 2017 Amol sir I am getting error as #DIV ERROR. As far as last cash flow is concern, it is outflow only.

Querist : Anonymous

Querist : Anonymous (Querist)

20 October 2017 Further, suppose I calculate the irr from opposite party's view I.e first and last cash flows to be positive and in-between cash flows as negative even then IRR is also not coming. Any solution please

Ashiwini Ballodia

Ashiwini Ballodia (Expert)
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20 October 2017 As per me you are getting #DIV error because of 0 in Year 11 & Year 12. Kindly delete Year 11 & Year 12 or give nominal number in Year 11 & Year 12 like 0.0001

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Amol S Joglekar

Amol S Joglekar (Expert)
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20 October 2017 either give the correct version of the question
OR
whatever you have given is assumed to be correct......
then the underlying assumptions are
01. the life of asset is 13 years....at the end of which the asset will be replaced by another asset with same outflow i.e. 450,000/-....
02. No inflows at the end of 11th and 12th suggests that economic life of asset is only 10 years.

Your views please.

Querist : Anonymous

Querist : Anonymous (Querist)

20 October 2017 Amol Sir, if i reverse the question i.e i try to calculate IRR from opposite party's angle then it would look like
Year Cash Flow
0 450000
1 -50000
2 -50000
3 -50000
4 -50000
5 -50000
5 -50000
7 -50000
8 -50000
9 -50000
10 -50000
11 0
12 0
13 450000
IRR #DIV/0!

Again there is prob in IRR calculation in excel.
Is IRR calculation in excel really reliable Now i doubt!

Amol S Joglekar

Amol S Joglekar (Expert)
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21 October 2017 01. IRR can be calculated without using excel also. You can try it.
02. My excel is giving me the IRR......so to say excel is not faulty........what is faulty is your array OR reference cell.....
the array....... 900000 outflow and 500000 inflow can not have IRR....and that is what your excel is showing by placing zero in the denominator of the error message.
03. Just try calculating IRR with the excel with -123000 in 13th year and tell me if it is gicing an answer of -10%?