How do I calculate the IRR (Internal Rate of Return)? - Posted by Robert W. Smith, Jr.

Posted by David Alexander on June 05, 1999 at 14:20:55:

So, IRR is just another name for Yield. Yes, that particular deal, I have no money in it. I was just assuming that the paper profit I had left in it based on the cash flow that it is generating is what IRR meant.

David Alexander

How do I calculate the IRR (Internal Rate of Return)? - Posted by Robert W. Smith, Jr.

Posted by Robert W. Smith, Jr. on June 03, 1999 at 19:53:13:

I just went out a bought myself a Texas Instruments, BA-35 Financial Calculator… watch out!

Can someone tell me how to compute the IRR on this thing. Assume that I purchase a mobile home for $5000, and sell it for $12,000 with $2,000 down and 60 monthly payments at 12.75% interest. Please don’t just give me the answer… tell me how I can do it my self. Give a man a fish… blah blah blah.

I have these useful keys on the calculator.
“N”;"%i";“PV”;“PMT” & “FV”

I’m not a complete moron, and I have been able to do some calculations for interest rate, monthly payment amounts, etc…

Any help is appreciated.

Regards,

Bob

If you use EXCEL it will also do it. (nt) - Posted by Ben

Posted by Ben on June 04, 1999 at 10:03:02:

nt

As easy as 1,2,3 - Posted by John Behle

Posted by John Behle on June 03, 1999 at 23:49:31:

As I titled the book, discounting is as easy as 1,2,3

STEP ONE - identify cash flows.
STEP TWO - solve for any unknown factors
STEP THREE - discount and add cash flows

STEP ONE
This is easy in that there is only one cash flow. The cash flow is XX amount for 60 months

STEP TWO
The unknown factor is what the amount of the monthly payment will be. You’ll have $10,000 (PV) at 12.75% (I) over 60 months (N). There is no lump sum or future payment, so that is -0- (FV). Enter those in and solve fot the payment and you should get $226.25

STEP THREE
Then, to discount this, all you need to do is substitute the price you paid (investment) of $3,000 into the PV register and solve for I that will be your yield or IRR.

If you need exact keystrokes, I haven’t had a TI35 for a long time and I’ve been out of film for my photographic memory for few years, so you may need to check the manual for whether you push the 2nd key or the Solve key to compute a figure.

Drop me your address and I’ll send you a copy of my book. You can read it and if it works for you and helps you make tons of money, you can tell the world :slight_smile:

Confused… - Posted by David Alexander

Posted by David Alexander on June 05, 1999 at 01:26:55:

I thought internal rate of return is when you have profit locked in between two loans and you figure the yield from the internal cash flow?

Example:

Property I bought for 48k,(12%, 360, 493/month) sold
for 62k with 4300 down, (11.125%, 360, 555/month.
So my note profit is 9700, 360,62/month cash flow solve for I%, which is 6.6%.

David Alexander

IRR is the same as yield or return on investment - Posted by John Behle

Posted by John Behle on June 05, 1999 at 13:09:34:

IRR or Internal Rate of Return relates to the return on investment. Your example doesn’t indicate how much you had left of your capital in the property. If I assume none, then your rate of return is infinite. You would have to plug in costs of time, advertising, education or something to exceed what you have received.

In the example above, he had cash left in the property.

If you try to do an IRR and have no investment, most calculators just say “ERROR”. We need to re-program one that says “WOW - REAL GOOD!”