How is this possible? (IRR FORMULA)

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Guest

Im using the IRR formula and it gives me different values in these 2
examples. Even if at the end the sum of both columns are the same

ie:
-30 -20
10 0
10 -10
20 40

Does anybody know how it works?
Thank you
 
Im using the IRR formula and it gives me different values in these 2
examples. Even if at the end the sum of both columns are the same[,] ie:
-30 -20
10 0
10 -10
20 40
Does anybody know how it works?
Click to expand...

First, you can see the formula on the NPV help page. If you
understand the math (most people don't), that might give you some
insight into why the same total cash flows will give different results
depending on the timing of the cash flows.

The short answer is "time value of money". Do a google search to see
many tutorial explanations.

IRR is the average discount rate (e.g. interest rate) that causes the
sum of the PV of the cash flows to be zero. The later the positive
cash flows, the lower the IRR. ("Which is better for the recipient:
pay me now, or pay me later?")

But of course, it is not always that simple, especially when you also
have later negative cash flows. Compare the IRR for the cash flow
{-10,0,-20,40} to your examples.
 
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