Which Excel formula is used to calculate IRR?

The formula to calculate the Internal Rate of Return (IRR) in Excel is indeed written as =IRR(range). This function requires a range of cash flows as an input, which includes both positive and negative values. Typically, the first value represents the initial investment (usually a negative number), followed by subsequent cash inflows and outflows associated with an investment project over time.

This formula then calculates the rate at which the net present value (NPV) of the cash flows equals zero, effectively providing a percentage that reflects the profitability of the investment. Using the entire range that includes all relevant cash flows ensures that IRR can accurately assess the rate of return across the complete timeline of the investment.

In contrast, other options do not directly correspond to how IRR is calculated. The reference to total cash flows does not indicate the function’s format needed in Excel. The NPV function requires a specific rate and does not compute IRR, and the CASHFLOW term is not a recognized Excel function for financial analysis. Therefore, using the IRR function with the appropriate range of cash flows is essential for calculating the internal rate of return effectively.