Reading: Internal Rate of Return (IRR)

And then, there are cash flow constellations that have no IRR. This can happen when a project always has a positive or negative NPV, regardless of the applied discount rate.

Example 5

Let's consider the following Project D. What's the IRR of this project?

When we ask Excel to run the calculation, it answers with an error message. Excel does not find an IRR because this project has no IRR! Regardless of the discount rate we use, its NPV is positive! The following cash flow profile documents this:

Clearly, project D is an excellent project and we should take it (assuming the cash flows have been properly estimated). While it is an excellent project, the IRR rule does not help us to reach this conclusion. As the figure above shows, the NPV rule can also handle projects with strictly positive (or negative) NPVs.