What is IRR [Internal Rate of Return] ?

IRR [INTERNAL RATE OF RETURN]

Financial Calculators are widely used in financial and banking industries. From simple financial formulas to complicated formulas are calculated with the help of high-quality financial calculators.

Starting from basic mathematical functions to calculating of internal rate of return, net present value (NPV), Discounted cash flows, Uneven cash flows and other financial metrics are calculated with the help of financial calculators.

The advanced features in these best financial calculator, makes it easy and comfortable for the business men.

What is IRR?

IRR, (Internal Rate of Return), is a metric used in capital budgeting to estimate the profitability of potential investments. It a discount rate that makes the net present value of all cash flows from a particular project equal to zero. When calculating IRR, the NPV (net present value) equals zero and the cash flow or investment for a project is given.

After finding out the internal rate of return, the result is compared to the cost of capital or hurdle rate of the company. The project is accepted as a good investment, only if the internal rate of return is greater or equal to the cost of the capital. At the same time the project is rejected if the IRR is lower than the hurdle rate.

Three ways to calculate the Internal Rate of Return:

  • IRR can be calculated using Financial Calculator.
  • IRR is also calculated in Excel or spread sheets, using IRR or XIRR function.
  • Iterative process is also used.

Benefits of calculating IRR:

  • Calculating of IRR helps in deciding over the investment in the development of new project, weather to cut down cost or increase the revenues.
  • Since the investment with the greater internal rate of return is usually preferred, in capital budgeting, the internal rate of return is one method that allows to rank and compare projects based on their projected yield.
  • Calculation of internal rate of return helps to select the right investment.
  • It is also helpful in analysing the investments.

List of Different Financial Calculators:

  • HP 10Bii+ Financial Calculator
  • Texas Instruments BA II Plus.
  • Casio FC-200V Financial Calculator.
  • Calculated Industries 3400 Pocket Real Estate Master.
  • HP 12CP Financial Calculator.
  • Sharp Calculators EL-334WB Business Calculator.

How to calculate IRR, on financial calculator?

  • Press cash flow (CF) key to open the cash flow register.
  • Later enter the cash flow values of subsequent periods into the calculator’s cash flow register.
  •  For entering the cash flow value of first year, hit the down arrow key once. The calculator should read CF1=, type the amount and hit [Enter].
  •  In a similar way enter the cash flow value of the year 2, by hitting the down arrow twice, and the process repeats for entering the cash flow value of each period.
  • After entering the cash flow values, press (IRR) key. Later press the CPT key. The IRR is displayed.

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