From: lozano@opalo.etsiig.uniovi.es (Lozano Mosterin, Jesus)
Subject: Re: IRR formula - Please help me
Date: 1996/02/24
Date: 1996-02-24T00:00:00+00:00 [thread overview]
Message-ID: <1996Feb24.123032.6860@opalo.etsiig.uniovi.es> (raw)
In-Reply-To: 312EAB76.5463@pixie.co.za
Hi, Maurizio
> I need to implemet the IRR formula (and calculation) into
> a system under development.
> I don't have a clue on what is (or looks like) the IRR.
> Please, help me.
In short, IRR=Internal Rate of Return
NetPresentValue = -Inversion(time0) + SUM from t=m to t=N
OF net_incomes/(1+rate_of_required_return)^t
(note that t could be non integer refered to rate periodicity)
You can calculate it on a hand calculator or a
spreadsheet (@IRR) BUT (!) take on account
- Some packages are considering that the inversion was
realized on time=1 NOT time=0, and the NPV,IRR results changes!
- IRR<>rate_of_required_return, but IRR its derivated
from supposing NetPresentValue=0, and calculating this rate.
- There are no exact computation to do this, and that
tools uses and heuristic o aprox. calculation, usually asking you
an initial value to search :-(
-There are some cases (many cases) in wich the calculus
has NO or VARIOUS solutions (related with the switch of
net_incomes signs over the time periods)
Resuming, the IRR could be a bad practice to evaluate bussines
projects, especially comparing it with other methods like the calculus
of the net present value on a range of required rates or math programing
on cash flows or option's theory or... The IRR is mostly (well?) used
in banking operations, evaluating underlayed rates on multi transactions
(like more than one investment).
I'll post you ASAP one or two algorithms to iterate in
the heuristic calculus. They are from me, so be warned about
checking the results. I think they are quite precises, but they
had no consideration on the multiples rates problem.
Best regards
STD Disclaim: I speak from my own opinions. I usually change my
wrong opinions. My employer it's an organization so it don't speak
about this or another topic. It could has a PERFECT opinion, but
it's quite reserved on telling us. As an reasonable and intelligent
counterpart you could extract valid or invalid propositions from
this mail, so you are only receiving unverified data for your
future work on the topic, and that includes an active evaluation.
next prev parent reply other threads:[~1996-02-24 0:00 UTC|newest]
Thread overview: 4+ messages / expand[flat|nested] mbox.gz Atom feed top
1996-02-24 0:00 IRR formula - Please help me Maurizio Incani
1996-02-24 0:00 ` Lozano Mosterin, Jesus [this message]
1996-02-27 0:00 ` Keith Thomas
-- strict thread matches above, loose matches on Subject: below --
1996-02-26 0:00 tmoran
replies disabled
This is a public inbox, see mirroring instructions
for how to clone and mirror all data and code used for this inbox