Irr strange result

H

hardgrafting

New Member
Joined
Feb 6, 2017
Messages
25
Hi,

I am trying to work out the IRR of the below set of cash flows, with the formula being =(1+IRR(A94:AJ94))^12-1

[TABLE="width: 5317"]
<tbody>[TR]
[TD="class: xl93, width: 92"] [/TD]
[TD="class: xl93, width: 91"][/TD]
[TD="class: xl93, width: 91"][/TD]
[TD="class: xl93, width: 91"][/TD]
[TD="class: xl93, width: 91"][/TD]
[TD="class: xl93, width: 91"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[TD="class: xl93, width: 90"][/TD]
[/TR]
</tbody>[/TABLE]

[TABLE="width: 5317"]
<tbody>[TR]
[TD="class: xl93, width: 92"] 660,512 [/TD]
[TD="class: xl93, width: 91"] 660,512 [/TD]
[TD="class: xl93, width: 91"] (3,672,280)[/TD]
[TD="class: xl93, width: 91"] 162,754 [/TD]
[TD="class: xl93, width: 91"] 163,090 [/TD]
[TD="class: xl93, width: 91"] (3,672,280)[/TD]
[TD="class: xl93, width: 90"] 38,606 [/TD]
[TD="class: xl93, width: 90"] 38,624 [/TD]
[TD="class: xl93, width: 90"] 38,906 [/TD]
[TD="class: xl93, width: 90"] 52,133 [/TD]
[TD="class: xl93, width: 90"] 163,169 [/TD]
[TD="class: xl93, width: 90"] 163,519 [/TD]
[TD="class: xl93, width: 90"] 48,625 [/TD]
[TD="class: xl93, width: 90"] 55,885 [/TD]
[TD="class: xl93, width: 90"] 55,993 [/TD]
[TD="class: xl93, width: 90"] 56,161 [/TD]
[TD="class: xl93, width: 90"] 56,279 [/TD]
[TD="class: xl93, width: 90"] 56,422 [/TD]
[TD="class: xl93, width: 90"] 56,600 [/TD]
[TD="class: xl93, width: 90"] 56,710 [/TD]
[TD="class: xl93, width: 90"] 151,806 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] (42,353)[/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 22,912 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 227,677 [/TD]
[TD="class: xl93, width: 90"] 88,178 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] 273,212 [/TD]
[TD="class: xl93, width: 90"] (511,564)[/TD]
[/TR]
</tbody>[/TABLE]




The result returns 435731.6% which is not sensible. Any ides why this could be? I deleted the last cash flow - 511k and the number becomes sensible (around 20%), however I need the IRR with the last cash flow included
 

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First, your data goes through BG94, not AJ94.

I confirmed that the annualized IRR for AJ94:BG94 is indeed about 435732.67%, and for AJ94:BF94, it is indeed about 20.67%, which are close to your 435731.6% [sic] and "about 20%" [sic].

(The differences are probably because you posted rounded displayed values, but the underlying values have digits after the decimal point.)

Second, your cash flows are what is strange, IMHO. I suspect they are incorrect. If you want help with that, post an explanation of the numbers.

Because of the "strange" cash flows, the data in AJ94:BG94 have 3 IRRs between -99% and 200%. BTW, the data in AJ94:BF94 have 2 IRRs.

(I didn't bother to look beyond 200%.)

The "stranger" the cash flows, the more likely it is that there are multiple IRRs or even none at all. See the wiki IRR webpage for more information.

By coincidence, with the default "guess" (10%), IRR(AJ94:BG94) finds the highest IRR, but IRR(AJ94:BF94) finds the lower IRR.

The "inconsistent" behavior is not unexpected. First, mathematically, the iterative IRR method is unpredictable when there are multiple IRRs. Second, the Excel IRR implementation is flawed, IMHO. Another implementation might behave more "consistently" with this data.

However, IRR(AJ94:BG94,5%) finds the IRR that annualizes to about 18.71%, which is close to 20.66% for IRR(AJ94:BF94).

The multiple IRRs for the data in AJ94:BG94 can be seen by creating a table of the "NPV curve", which is the NPV for various discount rates between -99% and 200% (in this case).


[TABLE="class: grid, width: 400"]
<tbody>[TR]
[TH][/TH]
[TH]A[/TH]
[TH]B[/TH]
[TH]C[/TH]
[TH]D[/TH]
[TH]E[/TH]
[TH]F[/TH]
[/TR]
[TR]
[TD="align: center"]1[/TD]
[TD="align: right"]%discnt[/TD]
[TD="align: right"]npv[/TD]
[TD="align: right"][/TD]
[TD="align: right"]guess[/TD]
[TD="align: right"]monthly irr[/TD]
[TD="align: right"]annl irr[/TD]
[/TR]
[TR]
[TD="align: center"]2[/TD]
[TD="align: right"]-99%[/TD]
[TD="align: right"]-5.09E+123[/TD]
[TD="align: right"][/TD]
[TD="align: right"]-35%[/TD]
[TD="align: right"]-34.64%[/TD]
[TD="align: right"]-99.39%[/TD]
[/TR]
[TR]
[TD="align: center"]3[/TD]
[TD="align: right"]-90%[/TD]
[TD="align: right"]-4.81E+64[/TD]
[TD="align: right"][/TD]
[TD="align: right"]5%[/TD]
[TD="align: right"]1.44%[/TD]
[TD="align: right"]18.71%[/TD]
[/TR]
[TR]
[TD="align: center"]4[/TD]
[TD="align: right"]-80%[/TD]
[TD="align: right"]-7.69E+46[/TD]
[TD="align: right"][/TD]
[TD="align: right"]10%[/TD]
[TD="align: right"]101.04%[/TD]
[TD="align: right"]435732.67%[/TD]
[/TR]
[TR]
[TD="align: center"]5[/TD]
[TD="align: right"]-70%[/TD]
[TD="align: right"]-2.79E+36[/TD]
[TD="align: right"][/TD]
[TD="align: right"]105%[/TD]
[TD="align: right"]101.04%[/TD]
[TD="align: right"]435732.67%[/TD]
[/TR]
[TR]
[TD="align: center"]6[/TD]
[TD="align: right"]-60%[/TD]
[TD="align: right"]-9.91E+28[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]7[/TD]
[TD="align: right"]-50%[/TD]
[TD="align: right"]-1.38E+23[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]8[/TD]
[TD="align: right"]-40%
[/TD]
[TD="align: right"]-1.27E+18[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]9[/TD]
[TD="align: right"]-30%
[/TD]
[TD="align: right"]1.62E+14
[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]10[/TD]
[TD="align: right"]-20%[/TD]
[TD="align: right"]2.82E+11[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]11[/TD]
[TD="align: right"]-10%[/TD]
[TD="align: right"]8.32E+08[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]12[/TD]
[TD="align: right"]0%
[/TD]
[TD="align: right"]3.10E+06[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]13[/TD]
[TD="align: right"]10%[/TD]
[TD="align: right"]-2.91E+06[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]14[/TD]
[TD="align: right"]20%[/TD]
[TD="align: right"]-2.08E+06[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]
[/TD]
[TD="align: right"]
[/TD]
[TD="align: right"]
[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]21[/TD]
[TD="align: right"]90%[/TD]
[TD="align: right"]-6.27E+04[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]22[/TD]
[TD="align: right"]100%
[/TD]
[TD="align: right"]-5.05E+03[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]23[/TD]
[TD="align: right"]110%[/TD]
[TD="align: right"]3.78E+04[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]24[/TD]
[TD="align: right"]120%[/TD]
[TD="align: right"]6.99E+04[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]
[/TD]
[TD="align: right"]
[/TD]
[TD="align: right"]
[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]32[/TD]
[TD="align: right"]200%[/TD]
[TD="align: right"]1.55E+05[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
</tbody>[/TABLE]

Formulas:
B2: =NPV(A2, $A$94:$BG$94)
E2: =IRR($A$94:$BG$94, D2)
F2: =(1+E2)^12 - 1
Copy the formulas down their columns


The inflection points (changes of sign) in column B suggest that there might be an IRR between -40% and -30%, 0% and 10%, and 100% and 110%. The midway "guesses" in column D demonstrate that Excel IRR does indeed return reasonable results.

FYI, the following table shows the "NPV curve" for the data in AJ94:BF94.


[TABLE="class: grid, width: 400"]
<tbody>[TR]
[TH][/TH]
[TH]H[/TH]
[TH]I[/TH]
[TH]J[/TH]
[TH]K[/TH]
[TH]L[/TH]
[TH]M[/TH]
[/TR]
[TR]
[TD="align: center"]1[/TD]
[TD="align: right"]%discnt[/TD]
[TD="align: right"]npv[/TD]
[TD="align: right"][/TD]
[TD="align: right"]guess[/TD]
[TD="align: right"]monthly irr[/TD]
[TD="align: right"]annl irr[/TD]
[/TR]
[TR]
[TD="align: center"]2[/TD]
[TD="align: right"]-99%[/TD]
[TD="align: right"]2.76E+121[/TD]
[TD="align: right"][/TD]
[TD="align: right"]5%[/TD]
[TD="align: right"]1.58%[/TD]
[TD="align: right"]20.66%[/TD]
[/TR]
[TR]
[TD="align: center"]3[/TD]
[TD="align: right"]-90%[/TD]
[TD="align: right"]3.04E+63[/TD]
[TD="align: right"][/TD]
[TD="align: right"]10%[/TD]
[TD="align: right"]1.58%[/TD]
[TD="align: right"]20.66%[/TD]
[/TR]
[TR]
[TD="align: center"]4[/TD]
[TD="align: right"]-80%[/TD]
[TD="align: right"]1.18E+46[/TD]
[TD="align: right"][/TD]
[TD="align: right"]105%[/TD]
[TD="align: right"]101.04%[/TD]
[TD="align: right"]435732.67%[/TD]
[/TR]
[TR]
[TD="align: center"]
[/TD]
[TD="align: right"]
[/TD]
[TD]
[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]11[/TD]
[TD="align: right"]-10%[/TD]
[TD="align: right"]1.09E+09[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]12[/TD]
[TD="align: right"]0%
[/TD]
[TD="align: right"]3.61E+06[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]13[/TD]
[TD="align: right"]10%[/TD]
[TD="align: right"]-2.91E+06[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]14[/TD]
[TD="align: right"]20%[/TD]
[TD="align: right"]-2.08E+06[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]
[/TD]
[TD="align: right"]
[/TD]
[TD="align: right"]
[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]21[/TD]
[TD="align: right"]90%[/TD]
[TD="align: right"]-6.27E+04[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]22[/TD]
[TD="align: right"]100%
[/TD]
[TD="align: right"]-5.05E+03[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]23[/TD]
[TD="align: right"]110%[/TD]
[TD="align: right"]3.78E+04[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]24[/TD]
[TD="align: right"]120%[/TD]
[TD="align: right"]6.99E+04[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]
[/TD]
[TD="align: right"]
[/TD]
[TD="align: right"]
[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
[TR]
[TD="align: center"]32[/TD]
[TD="align: right"]200%[/TD]
[TD="align: right"]1.55E+05[/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[TD="align: right"][/TD]
[/TR]
</tbody>[/TABLE]

Formulas:
I2: =NPV(H2, $A$94:$BF$94)
L2: =IRR($A$94:$BF$94, K2)
M2: =(1+L2)^12 - 1
Copy the formulas down their columns


The inflection points (changes of sign) in column I suggest that there might be an IRR between 0% and 10%, and 100% and 110%. The midway "guesses" in column K demonstrate that Excel IRR returns reasonable results.
 
Last edited:
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