.irr-calc-header { text-align: center; margin-bottom: 30px; }
.irr-calc-header h2 { color: #2c3e50; margin-bottom: 10px; font-size: 28px; }
.irr-calc-header p { color: #7f8c8d; font-size: 16px; }
.irr-input-group { display: grid; grid-template-columns: 1fr 1fr; gap: 15px; margin-bottom: 20px; }
.irr-input-field { display: flex; flex-direction: column; }
.irr-input-field label { font-weight: 600; color: #34495e; margin-bottom: 5px; font-size: 14px; }
.irr-input-field input { padding: 12px; border: 1px solid #bdc3c7; border-radius: 6px; font-size: 15px; transition: border-color 0.3s; }
.irr-input-field input:focus { border-color: #3498db; outline: none; }
.irr-btn-calculate { background-color: #27ae60; color: white; border: none; padding: 15px 30px; font-size: 18px; font-weight: bold; border-radius: 8px; cursor: pointer; width: 100%; transition: background 0.3s; margin-top: 10px; }
.irr-btn-calculate:hover { background-color: #219150; }
#irr-result-box { margin-top: 30px; padding: 25px; border-radius: 8px; display: none; text-align: center; border: 2px dashed #27ae60; background-color: #f9fdfa; }
.result-title { font-size: 20px; color: #2c3e50; margin-bottom: 10px; }
.result-value { font-size: 36px; font-weight: 800; color: #27ae60; margin-bottom: 5px; }
.irr-article { margin-top: 40px; border-top: 1px solid #eee; padding-top: 30px; line-height: 1.7; color: #333; }
.irr-article h3 { color: #2c3e50; font-size: 22px; margin-top: 25px; }
.irr-article p { margin-bottom: 15px; }
.example-box { background: #f4f7f6; padding: 20px; border-left: 5px solid #3498db; margin: 20px 0; }
.step-list { padding-left: 20px; }
.step-list li { margin-bottom: 10px; }
@media (max-width: 600px) { .irr-input-group { grid-template-columns: 1fr; } }
Understanding the Internal Rate of Return Calculation Example PDF
When analyzing potential capital investments, the Internal Rate of Return (IRR) is a primary metric used by financial analysts to estimate the profitability of potential investments. It is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
Practical Example for your Report:
Suppose you invest
$100,000 in a new manufacturing line. Over the next 5 years, you expect the following cash inflows:
- Year 1: $30,000
- Year 2: $35,000
- Year 3: $40,000
- Year 4: $45,000
- Year 5: $50,000
By inputting these into the calculator above, you can determine the exact percentage return this project yields annually.
How to Calculate IRR: The Formula
The calculation relies on the Net Present Value formula. To find the IRR, we solve for 'r' in the following equation:
0 = CF₀ + [CF₁ / (1+r)¹] + [CF₂ / (1+r)²] + … + [CFₙ / (1+r)ⁿ]
Where:
- CF₀: The initial investment (outlay)
- CF₁…CFₙ: Cash flows for each period
- r: The Internal Rate of Return we are solving for
Why Financial Experts Use IRR
The IRR is useful for comparing multiple investment options. Generally, a project is considered viable if its IRR is higher than the company's cost of capital. In many "internal rate of return calculation example pdf" documents used in corporate finance, you will find comparisons between IRR and the Weighted Average Cost of Capital (WACC).
Limitations of IRR
While powerful, IRR assumes that all interim cash flows are reinvested at the same IRR rate, which might be unrealistic. For more complex scenarios, financial managers often look at the Modified Internal Rate of Return (MIRR) or simply the NPV (Net Present Value).
function performIRRCalculation() {
var initial = parseFloat(document.getElementById('initialCost').value);
var c1 = parseFloat(document.getElementById('cf1').value) || 0;
var c2 = parseFloat(document.getElementById('cf2').value) || 0;
var c3 = parseFloat(document.getElementById('cf3').value) || 0;
var c4 = parseFloat(document.getElementById('cf4').value) || 0;
var c5 = parseFloat(document.getElementById('cf5').value) || 0;
if (isNaN(initial) || initial 15) {
verdict.innerText = "High-performance investment potential.";
verdict.style.color = "#27ae60";
} else if (finalPercent > 0) {
verdict.innerText = "Positive return project.";
verdict.style.color = "#2c3e50";
} else {
verdict.innerText = "Investment results in a negative return.";
verdict.style.color = "#e74c3c";
}
}
}
function calculateIRRValue(flows) {
var precision = 0.0000001;
var guess = 0.1;
var maxIterations = 1000;
var currentGuess = guess;
for (var i = 0; i < maxIterations; i++) {
var npv = 0;
var dNpv = 0;
for (var t = 0; t 0) {
dNpv -= t * flows[t] / Math.pow(1 + currentGuess, t + 1);
}
}
var nextGuess = currentGuess – (npv / dNpv);
if (Math.abs(nextGuess – currentGuess) < precision) {
return nextGuess;
}
currentGuess = nextGuess;
}
return null;
}