Internal Rate of Return (IRR) Since there is significant judgement/discretion in what the appropriate discount rate is in calculating the present value an alternative approach is to calculate the 'Internal Rate of Return' (IRR) A company makes an investment of $500 in the current year that generates a return in the next 10 future years. 2021 2022 2023 2025 2026 2027 2028 2029 2031 2024 121 2030 214 Cash Flows -500 100 110 133 146 161 177 195 236 The Internal Rate of Return (IRR) function calculates the discount rate that reduces the cash flow stream to a Net Present Value of zero. An IRR can only be calculated if at least one of the cash flows is negative and at least one is positive. Click on the Function in the box immediately below to see the expression 'IRR(B83:183)'. 24% Write a formula in the green cell below to calculate the Internal Rate of Return of the following series of cash flows in which the initial investment was $1000 rather than $500 above. 2021 2022 2023 2026 2028 2029 2031 2024 121 2025 133 2027 161 2030 214 -1000 100 110 146 177 195 236 Cash Flows IRR