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This has happened to me, interested to see what anyone else has to say.
If you are using monthly cash flows, I think it may be the formula you use for your accrual. Because not all months have equal number of days, when you account for your accrual this can slightly throw off your hurdles (way out in the ten thousandths of the decimal place and beyond). Switch out the XIRR formula for IRR, and I bet your hurdles will be exact.
yes use effect/nominal formulas for IRR/accrual calcs and not XIRR so accrual would be nominal(12%/12, 12) and then when you run the compounded IRR on your CF (effect(IRRA1-A100 *12,12), it will be 12%
When computing present values / IRR, you should adjust the discount rate to match the time period of the cash flows.
Example If you are calculating an annual pref of 15% - on an annual basis - You simply would use 15%. But if you are calculating an annual pref of 15% - on a monthly basis you would NOT use 15%/12 = 1.25%.
You would use the following formula to adjust your 15% to monthly compounding.
N period discount rate = (1+r)^n-1
Annual Hurdle Rate = 15% Monthly Hurdle Rate Calc =(1+15%)^(1/12)-1 Monthly Hurdle Rate =1.17%
Notice the 1.17% is lower than the 1.25%. This is simply b/c of more compounding periods.
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