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From: lozano@opalo.etsiig.uniovi.es (Lozano Mosterin, Jesus)
Subject: Re: IRR formula - Please help me
Date: 1996/02/24
Message-ID: <1996Feb24.123032.6860@opalo.etsiig.uniovi.es>#1/1
X-Deja-AN: 140885708
references: <312EAB76.5463@pixie.co.za>
organization: Universidad de Oviedo
newsgroups: 
 comp.lang.ada,comp.lang.basic.misc,comp.lang.c,comp.lang.c++,comp.lang.clipper,comp.lang.pascal.delphi.misc
Date: 1996-02-24T00:00:00+00:00
List-Id: <comp.lang.ada>

	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

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