Understanding and using (at)IRR.

UNDERSTANDING and USING @IRR Do you occasionally need a way to compare dissimilar investments, such as mountaintop real estate versus a supergrowth, high-technology stock? Are you looking for a calculated approach to measuring potential profits from an investment in gold or rare coins? Would you like to check the return on your certificates of deposit? If so, read on. You can accomplish all these ends by calculating and comparing the internal rates of return of these investments. The @IRR function in 1-2-3, Symphony, and Jazz provides an easy way to perform this calculation.

There are some terribly technical and convoluted definitions of internal rate of return (IRR), but the concept, if not the calculation, is quite simple and straightforward. An IRR is one measure (of many) of an investment's profitability. IRRs are not expressed in dollars or deutsche marks but rather as a percent of the money invested.

For example, if a friend says she received an annual IRR of 18% on a mutual fund, she means that besides recovering all the money she originally put into the fund, she also received an 18% profit, or 18 cents on each dollar she invested for each year of the investment. If another friend says he expects to receive a 4%-per-month IRR on rare coins, he means that in addition to getting back every dime he puts into the deal, he anticipates 4%-per-month profit for each month of the investment. It's that simple.

The two examples that follow demonstrate the techniques of using the @IRR function in 1-2-3 for internal rate of return calculations. Symphony and Jazz users can adapt these techniques to their software by following the appropriate command and formula conventions. The first worksheet you will construct analyzes the IRR for a 12-month bank certificate of deposit. The second analyzes the acquisition of mountaintop acreage with a view toward subdividing.

CHECKING CERTIFICATES OF DEPOSIT …