23
We can use the cashflow worksheet
(lCFI)
to enter a cashflow at time 0,
CFo, along with up to 24 additional cashflows at the end of 24
successive periods, CO1,CO2,. .., C24. Once these cashflow amounts are
entered, we can use the IIRRI function (internal rate of return) to
calculate an internal rate of return. It is a solution) to the relationship
CFo +C01'vj +C02.v; +...+C24.v;4 = O.
The cashflow amounts can each be positive (an amount received) or
negative (an amount paid out).
Calculatine Internal Rate of Return
We illustrate how the internal rate of return in Example 5.1 can be found
in this way. Example 5.1 has the following series of cashflows, where
time is measured in 6-month intervals:
Co = - 5100, C1 =
0, C2 = -2295, and C3 = 7982.5 .
The cashflow worksheet is cleared using ICFI12ndllCLR WORKI
The following series of keystrokes solves for the internal rate of return),
where) will be the 6-month internal rate of return:
Key inlCFI, the display should read CFo=,
Key in 5100 0
I ENTER
I III, the display should read CO1=,
Key in 0
I ENTER I III III, the display should read C02=,
Key in 2295
0 I
ENTER
I III III, the display should read C03=,
Key in 7982.5
I
ENTER
I
,
Key in IIRRllcPTI. The display should read 3.246.
This is the 6-month internal rate of return.
As seen in Example 5.2, a series of cashflows may have a unique internal
rate of return, it may have more than one internal rate of return, or it may
have no internal rate of return. If we attempt to solve for the internal rate
of return with the calculator function for Example 5.2, we get the
following results: