IRR and Rate of Return

If the beginning value of a fund is $10 million.

at the end of year 1:

  1. it pays off dividend $500,000

  2. share holder withdraws $2 million

  3. the rate of return on the fund in year 1 is 10%

at the end of year 2:

  1. it pays off dividend $400,000

  2. the market value of the fund is $9 million

  3. the rate of return of year 2 is 11.%

It requires to calculate IRR. But my question is that, when I input cash flows in my calculator, do I need to calculate each year’s return?

say in the end of year 1, do I need to input +1 million, which is equal to $10 million*10%. why?

Leofrancis, you should include de 1 million return since that would give you the future value of the initial 10 millions of the fund. Unless you include it, you would need a final value for the fund in order to calculate the IRR