IRR Estimation

jllx's picture
Rank: Chimp | banana points 5

Is there a quick way to estimate how accretive or dilutive cash flow timing would be to your IRR without excel (just back of the envelope)? For example, say you have cash flows which look like the following:

100 = 10 / (1+IRR) + 10 / (1+IRR)^2 + 110 / (1+IRR)^3

The IRR above is 10%. Now if we assume we get $50 of the $110 in year 1 instead of year 3, roughly how accretive would the IRR be (without a calculator or excel):

100 = 60 / (1+IRR) + 10 / (1+IRR)^2 + 60 / (1+IRR)^3

Note total money received is unchanged, you simply get $50 earlier. What would be the best way to approximate this?

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Nov 18, 2017

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