How to Calculate IRR When There is a Single Cash Inflow

This video shows how to calculate the IRR (internal rate of return) of a project by hand when there is just a single cash inflow.

When a investment opportunity consists of a single cash inflow, you can directly calculate the IRR using the following formula:

0 = -Cash Outflow + [Cash Inflow/((1+r)^n)]

where "n" is the number of periods into the future when the cash inflow occurs (the cash outflow is assumed to occur today).

After plugging in the cash outflow, cash inflow, and "n" you will be able to solve for "r" which is the rate of return that would make the NPV equal to zero. Next, multiply the value you obtain for "r" by 100 to convert to a percentage. This percentage is your IRR (internal rate of return) for the project.

At the end of the video, I also show you how to calculate IRR in Excel using the "IRR" function.

0:00 Introduction
0:23 Formula for IRR
0:40 Example of calculating IRR
1:53 Algebra for calculating IRR
3:04 Convert to a percentage
3:37 Calculate IRR in Excel

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[ivornworrell]

*beautifully explained, reminds me of "changing the subject of the formula", a Mathematical topic I studied way back in 3rd-Form in Elementary Algebra. Solving for n though presents more of a Math challenge if done manually, as opposed to say, by a financial calculator or by a spreadsheet, where some logarithms may even have to be employed to arrive at the solution. Salaam*

[MTful]

We can also use a straight forward formula:
IRR= (Cash inflow/cash outflow)^(1/n) -1

IRR for a single cash inflow is nothing more than ROI
Or annualized ROI if the investment period is more than 1 year