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Internal Rate of Return (IRR) | Formula | Calculation with Example [Video]

Internal Rate of Return (IRR) | Formula | Calculation with Example

In this video on internal rate of return (irr), here we learn formula, example of irr along with significance and its drawbacks.

๐–๐ก๐š๐ญ ๐ข๐ฌ ๐ˆ๐ง๐ญ๐ž๐ซ๐ง๐š๐ฅ ๐‘๐š๐ญ๐ž ๐จ๐Ÿ ๐‘๐ž๐ญ๐ฎ๐ซ๐ง (๐ˆ๐‘๐‘)?
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Internal return rate is the rate at which the net present value of the project is zero, the rate at which future cash flows are adjusted to calculate the present value.

๐ˆ๐ง๐ญ๐ž๐ซ๐ง๐š๐ฅ ๐‘๐š๐ญ๐ž ๐จ๐Ÿ ๐‘๐ž๐ญ๐ฎ๐ซ๐ง (๐ˆ๐‘๐‘) ๐…๐จ๐ซ๐ฆ๐ฎ๐ฅ๐š
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NPV= 0= CF0 + CF1/(1+IRR)^1 + CF2/(1+IRR)^2 + …..

CFn/(1+IRR)^n

๐’๐ญ๐ž๐ฉ๐ฌ ๐ญ๐จ ๐‚๐š๐ฅ๐œ๐ฎ๐ฅ๐š๐ญ๐ž ๐ˆ๐‘๐‘ ๐ข๐ง ๐„๐ฑ๐œ๐ž๐ฅ
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#1 – Calculate Cash inflows and outflows in a standard format.
#2 – Use the IRR formula in Excel
#3 – Compare IRR to Discount Rate

๐ˆ๐ง๐ญ๐ž๐ซ๐ง๐š๐ฅ ๐‘๐š๐ญ๐ž ๐จ๐Ÿ ๐‘๐ž๐ญ๐ฎ๐ซ๐ง (๐ˆ๐‘๐‘) ๐’๐ข๐ ๐ง๐ข๐Ÿ๐ข๐œ๐š๐ง๐œ๐ž
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The IRR of any project shall be estimated taking into account the following three assumptions:

1- The investments made are kept until the maturity dates.
2 – The intermediate cash flows will reinvest itself in IRR.
3 – By nature all cash flows are periodic, or the time gaps between various cash flows are equal.

To know more about ๐ˆ๐ง๐ญ๐ž๐ซ๐ง๐š๐ฅ ๐‘๐š๐ญ๐ž ๐จ๐Ÿ ๐‘๐ž๐ญ๐ฎ๐ซ๐ง (๐ˆ๐‘๐‘), you can go to this ๐ฅ๐ข๐ง๐ค ๐ก๐ž๐ซ๐ž:- https://www.wallstreetmojo.com/internal-rate-of-return-irr/

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