Question

Use XIRR to compute the internal rate of return for the following investment (please provide excel work and functions):

	A	B
1	Date	Cash flow
2	30-Jun-07	-799
3	14-Feb-08	70
4	14-Feb-09	70
5	14-Feb-10	70
6	14-Feb-11	70
7	14-Feb-12	70
8	14-Feb-13	1,020

Answer 1

Explanation

XIRR in excel is calculated using the XIRR function under the Financial Formulas tab.

The function has 3 parameters:-

1. Values:- Where series of cash flows need to be defined. The first value should be negative,representing initial investment/ outflow

2. Dates:- Dates corresponding to the series of occurrence of cash flows.

3. [guess]- It is an optional parameter of what the IRR could be. If not defined, excel assumes it to be 10%

Solution

-For Values, select Range C3;C9 representing cash flows

-For Dates, select range B3:B9 representing dates when these cash flows occur. Make sure the date format is correct

-For [guess], no value has been selected, so the default would be 10%

Therefore, XIRR for the series of cash flows is:-