can anyone explain to me what the Internal Rate of Return (IRR) is?

Ok - Now I get it !!
That's definitely a clearer way of explaining it.

Well done tiger.
A gold star for you.

Thanks.
 
Glad you got it in the end. What are you evaluating anyway, as a matter of interest, and why are you particularly interested in IRR as a means of evaluation?
 
Not evaluating anything.

Just noticed it mentioned a lot recently in some commercial syndicate thingys.
 
Okay this is something that was never 100% clear to me the first time I came across it and every time I revisit it I have trouble grasping it fully. While it is something I understand to a point I hope to pin it down here. Halfway through I am just after seeing that this is now understood by the OP, but I will continue since I have started and plus I am sure I will be back to this.

Building on from Tigers example using EXCEL.

year__amount
0____-5000
1____500
2____0
3____500
4____0
5____6000
NPV____IR£580.25 -- this is with the rate at 5% in EXCEL =NPV(5%,Q2:Q7)
IRR____7.72% -- this is with the guess at 10% in EXCEL =IRR(Q2:Q7,10%)

Now if I change the rate in the NPV from 5% to 7.72%, see below, the NPV will go to 0 or as good as.

year__amount
0____-5000
1____500
2____0
3____500
4____0
5____6000
NPV____IR£0.96 -- this is with the rate at 7.72% in EXCEL =NPV(7.72%,Q2:Q7)
IRR____7.72% -- this is with the guess at 10% in EXCEL =IRR(Q2:Q7,10%)

Now some questions:
1 - Does this mean that the interest rate on the Bank account was 7.72%?
2 - What is the guess figure in the IRR function as it does not seem to matter what this is, you still get 7.72%?
3 - The lower the rate in the NPV function is than 7.72% the greater the NPV is. The greater the rate in the NPV function is than 7.72% the lower the NPV is. So what does this mean exactly?
4 - Building on from question 3, is the rate in the NPV function someway related to the interest rate i.e. the cost of borrowing?
5 - Ah, it might be sinking in. If the rate in the NPV function is someway related to the the cost of borrowing then it would make sense that the NPV would be greater than zero if the the rate in the NPV function is less than 7.72%. Likewise the NPV would be less that 0 if the the rate in the NPV function is greater than 7.72%. And when the rate in the NPV function is close to 7.72% the NPV is close to zero. Am I right?
6 - Building on from Q5. It makes sense that the NPV would be greater than zero if the the rate in the NPV function is less than 7.72% as your investment(5000) or whatever it may be would be beating current interest rates. Therefore a good investment. Am I right?

Okay I think I have it now. Hope this helps and maybe raises some more Q's. If anyone has anything to offer on this, then please do.
 
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