Assumptions and method
Only one initial outlay followed by nonnegative receipts is supported. Multiple sign changes can create several IRRs. Use NPV to compare different project scales.
Test a scenario
Use the result in a decision
Use consistent currency, timing and price assumptions.
Only one initial outlay followed by nonnegative receipts is supported. Multiple sign changes can create several IRRs. Use NPV to compare different project scales.
Set a baseline and change one assumption to compare outcomes.
A worked example
Follow the fixed teaching example
- Set −12,000 + 4,500/(1+r) + 5,000/(1+r)² + 5,500/(1+r)³ = 0.
- The tool brackets and repeatedly bisects the rate until the discounted receipts equal the outlay. Use the resulting rate only for this conventional cash-flow sequence.
These illustrative inputs describe a project scenario, not a published benchmark. All monetary inputs use the same currency and price basis.
- Initial outlay
- 12000
- Period-end receipts
- 4500, 5000, 5500
- IRR per period
- 11.6181 %
Interpret the output only within the assumptions above. Changing the inputs changes the result; it does not validate the inputs.
Source & credit
Standard financial mathematics; no single inventor is asserted.
OpenStax: Principles of Finance, capital budgeting
This is independently written code and explanation of the underlying method. The linked publication, its diagrams and its trademarks remain its owner’s material; no permission to reuse them is implied.