From: Christopher Dicely <cmdicely@...>
Date: 2008-02-10T02:04:29+09:00
Subject: Re: Internal Rate of Return (#156)

2008/2/8 Matthew Moss <matthew.moss@gmail.com>:
> > Internal Rate of Return (IRR -http://en.wikipedia.org/wiki/Internal_rate_of_return) is a common financial
> > metric, used by investment firms to predict the profitability of a company or
> > project. Finding the IRR of a company amounts to solving for it in the equation
> > for Net Present Value (NPV -http://en.wikipedia.org/wiki/Net_present_value),
> > another valuable decision-making metric:
> >
> >                N      C_t
> >         NPV =  Ó  ------------
> >               t=0 (1 + IRR)**t
> >
> > This week's quiz is to calculate the IRR for any given variable-length list of
> > numbers, which represent yearly cash flows, the C_t's in the formula above: C_0,
> > C_1, etc. (C_0 is typically a negative value, corresponding to the initial
> > investment into the project.) From the example in the Wikipedia article
> > (http://en.wikipedia.org/wiki/Internal_rate_of_return), for instance, you should
> > be able to produce a rate of 17.09% (to four decimal places, let's say) from
> > this or a similar command:
> >
> >         irr([-100,+30,+35,+40,+45])
> >         => 0.1709...
>
>
> I think one point, which isn't brought out here and not well in the
> wikipedia article either, is that given all of the C_t, you still have
> two unknowns: IRR (which we are attempting to solve for) and NPV.
>
> In this case, you want NPV set to zero in order to solve for IRR.  Or
> did I miss something?

Isn't IRR defined as the discount rate that results in an NPV of 0?