Answering this involves an internal rate of return calculation, and it is the same process we will use to calculate the return on an annuity. Exhibit 4.5 shows how to set up this calculation in Excel.

The rate of return measures how much a given portfolio or asset has changed in value over time. For example, if you invest $1 and have $1.10 a month later, your rate of return is 10%.

Investors use rate of return to understand the earnings or losses on an investment in a specified period of time. Learn more about how it’s calculated.

The internal rate of return (IRR) measures the return of a potential investment while excluding external factors. IRR helps investors estimate how profitable an investment is likely to be. All ...

Calculating the IRR, or an investment’s expected annual rate of growth, is no easy task for investors. Find the formula and tips for calculating IRR.

Using the example data shown above, the IRR formula would be =IRR (D2:D14,.1)*12, which yields an internal rate of return of 12.22%. However, because some months have 31 days while others have 30 or ...

From there, you can determine a project's internal rate of return and weigh if that rate is worth pursuing. Here's an example: Say you're on the fence about purchasing a $100,000 piece of equipment.

For example, if an Investment A takes 10 years to generate $10,000 and Investment B takes five years to generate that same return, they have an equal ROI. In this situation, the IRR of Investment B is ...

From there, you can determine a project's internal rate of return and weigh if that rate is worth pursuing. Here's an example: Say you're on the fence about purchasing a $100,000 piece of equipment.