The IRR function is provided by Excel so you can calculate an internal rate of return for a series of values. The IRR is the interest rate accrued on an investment consisting of payments and income that occur at the same regular periods. In the values provided to the function, you enter payments you make as negative values and income you receive as positive values.
For instance, let's say you are investing in your daughter's business, and she will make payments back to you annually over the course of four years. You are planning to invest $50,000, and you expect to receive $10,000 in the first year, $17,500 in the second year, $25,000 in the third, and $30,000 in the fourth.
Since the $50,000 is money you are paying out, it is entered in Excel as a negative value. The other values are entered as positive values. For instance, you could enter �50000 in cell D4, 10000 in cell D5, 17500 in cell D6, 25000 in cell D7, and 30000 in cell D8. To calculate the internal rate of return, you would use the following formula:
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