Math question. How is IRR calculated when all cash flows are positive?
IRR is the discount rate that makes the NPV of positive cash flows equal to the NPV of negative cash flows. Different discount rate will weigh the positive and negative cash flows such that they are equal leading to NPV = 0.
E.g. inflows in year 1 and 2, out flow in year 3.
If there are only positive cash flows, no negative cash flows, the only way to reach NPV = 0 is when the discount rate = infinity.
Usually I just see a CAGR calculation camouflaged as IRR. Does anyone have any insights?
I know financial calculators including built-in Excel functions exist, thanks, but would like to build understanding.
if you don't have an upfront cost, then there's not Rate of Return -- as in Return on _____.
I found a lottery ticket that won $10 - there's no possible calculation of IRR because I paid nothing.
If you are trying to calculate the IRR on a stream of dividends, the cost is the cost to acquire the shares that enable you to receive the dividends.
I should have mentioned I am talking about dividends in an LBO. So the sponsor equity is the negative CF, that makes sense, thanks.
There is no IRR, but it should have an NPV
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