This is normally useful while comparing one investment with other. For calculating IRR:

- You are provided the expected cash flows of a project/investment
- NPV = O (zero)
- Initial cash investment= Present Value of Future Cash Flows for that investment i.e. Cost paid= PV of future cash flows. Hence, the NPV= 0

There is an easy way, not getting into too much details, here's IRR or Internal rate of return formula in excel:

Just click on the Formula bar > Financial > IRR

A pop-up window will open where you need to fill following details:

- Values i.e. a reference to the cells for which you wish to calculate IRR and
- Guess i.e. a number close to the IRR result. If not given, it is assumed to be 10% only.

The result shall be displayed immediately.

After calculating IRR or Internal rate of return, it is compared to company's cost of capital.

- If IRR>=Cost of capital: the company shall prefer to accept the project.
- If IRR< Cost of capital: the company shall not accept it.

This is normally useful while comparing one investment with other. For calculating IRR:

- You are provided the expected cash flows of a project/investment
- NPV = O (zero)
- Initial cash investment= Present Value of Future Cash Flows for that investment i.e. Cost paid= PV of future cash flows. Hence, the NPV= 0

There is an easy way, not getting into too much details, here's IRR or Internal rate of return formula in excel:

Just click on the Formula bar > Financial > IRR

A pop-up window will open where you need to fill following details:

- Values i.e. a reference to the cells for which you wish to calculate IRR and
- Guess i.e. a number close to the IRR result. If not given, it is assumed to be 10% only.

The result shall be displayed immediately.

After calculating IRR or Internal rate of return, it is compared to company's cost of capital.

- If IRR>=Cost of capital: the company shall prefer to accept the project.
- If IRR< Cost of capital: the company shall not accept it.