IRR (Internal Rate of Return)

A metric that annualizes the rate of return for a range of cash flows and estimates the profitability of an investment.

In most cases, IRR will give you a large result.

The textbook formula for IRR is:

Discount rate at which Initial Cash Outflows = PV of all future cash flows.

To calculate IRR in MS Excel, there’s the straightforward IRR/ XIRR formula. Outside of Excel, you can extrapolate a few probable rates and figure out the exact IRR by a trial and error method.

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