The other day I got an interesting question from a reader. He was trying to do an IRR (internal rate of return) but had one specification. An IRR function assumes that all cash flows are at the same period of the year. He wanted something more precise that would account for the fact that some cash flows might be at the start, beginning or middle of the year. I suggested that he try to do an IRR manually and decided to give it a try myself.

First, take a look at a traditional IRR function result:

Then, I decided to get the same result but with a function instead. How?

An IRR function is the rate of return for break-even. So I created a formula manually that would calculate the “NAV”. When that NAV would become $0, I would have the correct IRR. Look at this screen:

Then, I used the goal seek function to set the nav to $0.

As you can see, I get the same result:

Then, I did the same exercise but changed the years to reflect the period. So Q1 of the 3rd year would become 2.25, etc. See the result here: