Excel allows a user to get a negative internal rate of return of an investment using the IRR function. This step by step tutorial will assist all levels of Excel users in displaying a negative IRR.
Figure 1. The result of the IRR function
Syntax of the IRR Formula
The generic formula for the IRR function is:
=IRR (values, [guess])
The parameter of the IRR function is:
- values – a range of cells containing values, including initial investment and incomes. The investment must have a negative sign, as it is a cost
- [guess] – an estimated value for the expected IRR. This parameter is non-mandatory. If it’s omitted, the function will take a default value of 0.1 (=10%).
Setting up Our Data for the IRR Function
Let’s look at the structure of the data we will use. In column B (“Amount”), we have values including initial investment and yearly incomes. In column C (“Description”) we have a description of every amount. In the cell E3, we want to get the IRR.
Figure 2. Data that we will use in the IRR example
Get a Negative IRR of Values Using the IRR Function
In our example, we want to get the IRR of the values in the range B3:B10. The result will be in the cell E3.
The formula looks like:
=IRR(B3:B10)
The parameter values is the range B3:B10.
To apply the IRR function, we need to follow these steps:
- Select cell E3 and click on it
- Insert the formula:
=IRR(B3:B10) - Press enter.
Figure 3. Using the IRR function to get the negative internal rate of the investment
As you can see the investment is $10,000,000 and the total return is $7,000,000. Therefore, we have the difference of $3,000,000. Finally, the negative result in the cell E3 is 8%, which is the internal rate of the investment.
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