Calculating IRR on an acquisition with immediate cash flow...

iellis's picture
Rank: Chimp | banana points 2

I am trying to figure out the best way to model cash flows for an acquisition that will have immediate cash flows. These are residential rental portfolios, so the day we acquire the property we begin "receiving"cash flow. Do I put the initial acquisition costs (the equity) in a separate year 0 column, then begin receiving cash flow in year 1, or should I include the acquisition costs in year 1? If I put them in year 0, wouldn't that make your irr incorrect, since it would assume a full year without cash flow....

Thanks ,


Private Equity Interview Course

  • 2,447 questions across 203 private equity funds. Crowdsourced from over 500,000 mem.
  • 9 Detailed LBO Modeling Tests and 15+ hours of video solutions.
  • Trusted by over 1,000 aspiring private equity professionals just like you.

Comments (2)

Jun 19, 2014

CF0= Cash outflow
CF1= first inflow
- You can think of it as CF0 Day 29 and CF1 day 30 if you want. The money received immediately starts the year and is collected for a full year is my understanding. So CF1 should be your expected inflow for that year, the beginning year after money is outflowed to purchase whatever. CF0 is just an initial expenditure not an actual time.

    • 1
Jun 19, 2014