Posted by drew on November 15, 1999 at 07:31:08:

David,

Yep, that’s what I’m saying. 106% for IRR is way way way off.

There are two ways to set up your initial cashflow:

1)Use the cost of your initial cashflow (-7017.75) as your initial investment (occurring 1 month before you receive the first $500 payment) and have a cashflow of 0 for the first 15 months (this assumes the 500 coming in is immediately going out)

or

- Just use the 500 going out as the cashflow for the first 15 months which ignores your intial cost of this cashflow

The first way is probably the best way to look at this problem since it takes into account the initial cost of your cashflow.

Using the first way I come up with an annual IRR of 28.73% and using the second way I get 31.73%. Either way, it doesn’t get anywhere near 100%.

I’d appreciate it if someone else would check my numbers on one of those fancy HP thingys to see if I’m in the ballpark.

-drew