Master the table calculation of internal rate of return and make wiser investment decisions

Internal rate of return (Internal Rate of Return, IRR) is one of the important indicators to evaluate the profitability of investment projects. It represents the discount rate that makes the net present value (Net Present Value, NPV) of the project zero. In investment decisionsOctagonpokertableIt is very important for investors to understand how IRR is calculated. This article will describe in detail how to quickly learn how to calculate IRR tables to help investors make more informed decisions.

The calculation of IRR involves the discount of project cash flow. First, we need to create a table that includes the following:

Year cash flow (ten thousand yuan) 0-1000 1 300 2 400 3 500

Taking the above table as an example, we can see that this is a three-year investment project with an initial investment of 10 million yuan, followed by an annual cash flow of 3 million yuan, 4 million yuan and 5 million yuan respectively. Next, we need to find a discount rate to make the net present value (NPV) of the project zero. The calculation formula of NPV is:

NPV = (CF0 / (1 + r) ^ 0) + (CF1 / (1 + r) ^ 1) + (CF2 / (1 + r) ^ 2)Octagonpokertable... + (CFn / (1 + r) ^ n) = 0

Among them, CF0, CF1, CF2...CFn represent the cash flow of each period, r is the discount rate, n is the project term. In order to solve IRR, we need to find the r value which satisfies the above formula by iterative method. In this process, you can use Excel, financial calculator or other professional software to assist in the calculation.

Suppose we calculate that the IRR is 15%, then we can compare it with the IRR of other investment projects, or with the expected rate of return of investors. If the IRR is higher than the expected return of investors, then the project is worth investing in; conversely, if the IRR is lower than the expected return of investors, then investors should consider abandoning the project.

The calculation method of IRR table can not only be applied to a single investment project, but also can be used to compare the profitability of multiple investment projects. By comparing the IRR of different projects, investors can make investment decisions more wisely.

It should be noted that although the IRR calculation method is very practical in many cases, it also has some limitations. For example, when the positive and negative changes of the cash flow of a project are inconsistent in different years, there may be multiple IRR values, which requires investors to analyze the actual situation of the project more carefully. In addition, for projects with unconventional cash flow, investors also need to consider other evaluation methods, such as net present value (NPV).

In a word, it is very important for investors to master the calculation method of IRR table. By comparing the IRR of different projects, investors can make investment decisions more wisely, thus improving the return on investment. In practice, investors also need to combine their own actual situation, comprehensive use of a variety of evaluation methods to achieve investment goals.