C F t net after-tax cash inflow-outflows during a single period t r internal rate of return that could be earned in alternative investments t. In financial modeling as it helps calculate the return an investment would earn based on series of cash flows. The Purpose of the Internal Rate of Return.
IRR Formula The IRR formula is calculated by equating the sum of the present value of future cash flow less the initial investment to zero.
The IRR formula is as follows. The NPV is calculated by taking the total summation of the cash flow and then multiplying that by the dividend of net cash outflows divided by one plus the discount rate of return. NPV displaystylesum_ t1 T dfrac Ct 1r t NPV t1T. What is the IRR Formula.