Economists/finance guys... or any math/computer science/excel whizes
Anyone know why Excel wants a "guess" when trying to compute the Internal Rate of Return in corporate financial cashflow statements?
I'm getting a 50% IRR, and by intuition I know thats wrong. (Initial cash investment of $4mil, with an NPV of $108,869.) I'd post the cash flow myself, but unfortunately it's confidential. 
You did something wrong.

You really think this is the forum for this? We get it. You're smart.
Repeat after me... You is smart. You is kind. You is beautiful. 
Quote:
I'm getting 50 percent when it should be 4.2 percent. The function is IRR(cell a:cell z, guess).... I try to plug ing "4%" as a guess, and it returns 50%. I know I'm doing something wrong. 
Sounds like your math is wrong.... :)

Initial investment should be negative,no?

Quote:

Quote:
The only thing that would be different if the initial cost was wrong would be the sign. 
Its an optional argument to the formula. Its there from old versions I believe as excel uses an iterative technique and without a starting "guess" the computations could take a long time for a finite answer (ie 22.321321324% vs 22.32%). However, I think this was really an issue many years back as today's CPUs don't break a sweat to quickly come up with a result.

Oh  IRR is the discount rate where NPV = 0.
So a negative NPV should have a negative IRR. 
If you make a negative investment it means you have a lot of Gummy Bears.

Quote:

If you are calculating that sort of money for a client (or your employer), do you really honestly think that a football forum is the place you'll get reliable answers?
I'd highly recommend contacting MS instead. I'm a computer professional.. and I'd not even try to answer your question, due to the fact it's actual money for a company. I'd recommend making sure you have the right answer. Not an inebriated answer from us fools. : p 
Quote:
IRR grabs all the cells including the initial investment as a negative number. On NPV, I take the year 0 initial investment and add it the NPV of year 1 through year N, with a specified discount rate. So I have have CF of 4 years in A1 through D1 (A1 is investment), my formulas are: IRR =IRR(A1: D1) NPV =A1+NPV(Rate,B1: D1) Hope I am explaining clearly. Dog ass tired tonight. 
Quote:
Now... why it still asks for a 'guess' is still dumb in my opinion. 
Quote:

Quote:
Feel free to PM me for more help. Will have a look in the AM. 
The answer is always E=MC2

18. You can't go wrong with 18.:thumbs:

IRR uses Newtons method to calculate the rate, it is simple but fast. That is why you need a guess. Newtons method is very susceptible to falling in local minima if the initial guess is bad


Quote:

Quote:
Here is why you need a guess, MightySmurf. Iterative optimization techniques often use gradient based techniques that "find the best direction" to move in to optimize some function. Look at the following picture: http://upload.wikimedia.org/wikipedi...pecartoon.png Say you are trying to minimize that wavey function. Many of the techniques Excel uses tries to "greedily" minimize, i.e., find the closest "hill" and move down it. If your initial guess is at point "A," many techniques will stop at the bottom of the valley (where the pink ball is). If you're initial guess is at point "C," you will most likely end up in the valley between "B" and "C." Of course, if you are trying to minimize that function, the valley where the pink ball is located is better than the valley between "B" and "C." I know nothing about the IRR function or whatever, but http://24.media.tumblr.com/33102f3a4...xzspo1_400.jpg 
1. Why are you using Excel for this?
2. Why does a multimillion dollar company not already have the template completed? 
I'm really good at Mass Effect 3.

All times are GMT 7. The time now is 07:44 AM. 
Powered by vBulletin® Version 3.8.7
Copyright ©2000  2014, vBulletin Solutions, Inc.