Formulas and Functions

Table Of Contents

Example 2

Assume you are presented with the opportunity to invest in a partnership. The initial investment

required is $50,000. Because the partnership is still developing its product, an additional $25,000 and

$10,000 must be invested at the end of the rst and second years, respectively. In the third year the

partnership expects to be self-funding but not return any cash to investors. In the fourth and fth

years, investors are projected to receive $10,000 and $30,000, respectively. At the end of the sixth

year, the company expects to sell and investors are projected to receive $100,000.

Using the IRR function, you can determine the expected rate of return on this investment. Based on

the assumptions given, the rate would be 10.24%.

Initial

Deposit

Year 1 Year 2 Year 3 Year 4 Year 5 Sales

proceeds

=IRR(B2:H2) -50000 -25000 -10000 0 10000 30000 100000