The internal rate of return (IRR) indicates the return on an investment in relation to a series of cash inflows and outflows. The NPV (Net Present Value) is calculated for each period. In other words: what is the internal rate of return (IRR) = profitability and the cash flow of investments with ongoing costs and revenues if they are expected to be amortized after a specific period?
Example: The construction of a property costs €2,000,000; the rental income amounts to €250,000 annually, and the annual costs are €70,000. The investment is expected to be recouped after 20 years. At that time, the property will have a value of €750,000. What is the internal rate of return (IRR) of the investment? What is the net present value (NPV) over the investment period?
This type of calculation is therefore suitable for comparing the profitability of investments with different cost and revenue streams. The payments are discounted to the desired period using an IRR (internal rate of return). It is also possible to calculate the NPV using alternative interest rates.
Data Entry: Very often, the process begins with a large initial payment (investment amount) followed by ongoing costs and revenues over a specific period. In these cases, the number of periods (usually years), the investment costs, the periodic costs, and the periodic revenues are entered into the corresponding fields. The NPV-IRR table is automatically populated with the data during the calculation.
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Note: Irregular costs and revenues can be entered directly into the NPV-IRR table.
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Number of Payments: Enter the investment period (usually) in years.
Investment Amount: Enter the acquisition costs (investment amount).
Periodic Costs: Enter the amount of periodic costs.
Periodic Revenues: Enter the amount of periodic revenues.
Periodic Revenues: Enter the amount of periodic revenues.
Alternative Internal Rate of Return: If you want to know what the NPV of a given cash flow and income series would look like with an alternative internal rate of return, enter the alternative internal rate of return and recalculate the NPV table. A positive or negative residual value will be displayed at the end of the term.
Calculate: Click 'Calculate' to calculate the internal rate of return (IRR) and the NPV of the investment.
The 'NPV - IRR' Table: The result of the calculations is the NPV - IRR table and the internal rate of return.
Save - Load - Delete Calculations: Registered users can save calculations. Further information about the function and the terms of use can be found
here.