#num error using IRR

[Frank Situmorang]

Hello,

Suppose I have money of IDR 300,000,- ( this is my money not a loan). Now I
want to evaluate whether to Invest to build houses for rental. I have a
problem if to calculate the IRR for investment. I tried to make in first line
300,000, because this is my money, and then in the 2nd linse minus 300,000 (
capital outlay) then at the bottom I calculate the IRR for the value from 1st
line to next, but it still shows the error. Please help, how can I use it, It
can only works if I put minus 300,000,- which is not true because this is not
a loan, but my money.

Here is my data

Year Invest Put in the bank Interest 8% p.a
1 0 (300-300)300,000
2 72,000 27,000
3 72,000 27,000
4 72,000 27,000
5 72,000 27,000
6 72,000 27,000
then sold 400,000
IRR #NUM!
Sum 760,000 435,000


Thanks very much in advance

 

[Jarek Kujawa]

should be -300,000 in the 1st line cause this yr expenditure
this is how IRR function works

 

[Frank Situmorang]

Hi Jerek, as I mentioned this is my own money, so there is 300,000 plus and
there is 300,000 minus result in zero in the 1st year. I made this on
purpose, because it is tricky, we always think that having deposited in the
bank is always better, but it seems to me that total money we will have,
especially if we then sell it, it is better to invest.

How can we make it to show the IRR with my assumption.

Thanks very much

 

[pshepard]

Hi Frank,

Values must contain at least one positive value and one negative value to
calculate the internal rate of return (IRR); and cash flows must occur at
regular intervals.

Below is a suggestion on how to enter your data, breaking down income into 6
month intervals in order to represent both the negative and positive numbers
which equate to zero for the initial investment, and dividing the annual
income by 2.

Data Description
-300,000 Initial cost of a business
300,000 Initial cost of a business
36,000 Net income for the first year
36,000 Net income for the first year
36,000 Net income for the second year
36,000 Net income for the second year
36,000 Net income for the third year
36,000 Net income for the third year
36,000 Net income for the fourth year
36,000 Net income for the fourth year
36,000 Net income for the fifth year
36,000 Net income for the fifth year
200,000 Then sold
200,000 Then sold

Which results in:

36% Investment's internal rate of return after five years

Hope this helps,
Peggy

 

[Frank Situmorang]

Thanks pshepard for your help. Can you inform me what is the basic idea
behind it that we have to split income into 2 part in the same year?. Is it
because the cost is devided into 2 part in the same year?

Or because it should be in the prespective of IRR should bring the money to
zero Net present value?

Thanks for your further explanation.