Proper use of the MIRR (and IRR)

[nostabo]

I want to provide a MIRR and an IRR analysis for the implementation of
proposed systems. As such I have 5 years of expenses for the analysis period
and 5 years of revenue. All of these values are from the year-end.

How do I setup the IRR and MIRR parameters. The function prototypes (and the
Excel help) slightly confuses me concerning the values parameter:
MIRR(values,finance_rate,reinvest_rate)

IRR(values,guess)

Thanks in advance for your adivce,

Rick

 

[Martin Fishlock]

IRR(values,guess)

values are a range of values ie B2:B6, where B2=initial cash outflow/inflow
(t0)
B3=cashflow at theend of t1...
and the guess is a seed value which is optional

MIRR

MIRR(values,finance_rate,reinvest_rate)

Values are the same as IRR
Finance_rate is the interest rate you pay on the money used in the cash flows.
Reinvest_rate is the interest rate you receive on the cash flows as you
reinvest them.

eg:
IRR(B2:B6)
MIRR(B2:B6,.1,.05)

 

[nostabo]

Thanks Martin,

But what really has me confused is how to list the values. If I have
outflows and inflows for 5 years, do I list the outflows first or alternate
them by year like:
(Year 1 outflow, Year 1 inflow, Year 2 outflow, Year 2 inflow, Year 3
outflow, Year 3 inflow, Year 4 outflow, Year 4 inflow, Year 5 outflow, Year
5 inflow)

....and if there is a year or two with a zero outflow and/or inflow should
they be listed as 0 in the range (array), or simply left out.

Rick

 

[Martin Fishlock]

Rick,

It is the net cash flow.

So you enter your inflows and your outflows in the normal statement format
and have a net cash flow for the period/year and then you apply the IRR/MIRR
formula on the net values with -ves as outflows and +ves as inflows or the
other way around if you prefer.