The plotting of NPV's on a chart made understanding the concept of IRR a breeze, and then how to use IRR to accept or reject a project. One of the best presentations I've seen on making a complex topic simple, thank you!
Dude....it is unreal how much better you are at explaining this information than other people. It's a real gift and I hope you continue to share it with us.
@5:43 It's actually very easy to solve this algebraically. It becomes −100+60/(r+1)+60/(r+1)(r+1) =0 and then solve for "r". Knowing that is a quadratic equation would only trouble someone who doesn't understand the concept of an IRR. If the total sum of projected cashflow is greater than the initial investment/cost, then IRR is always going to be a positive rate. Thus, you should ignore the negative solution to your quadratic equation. Also, Excel has an IRR function that can do all this for you in case you want to double-check your work. Cheers!
he is awesome. He is making it looks so easy. For 31 people with thumbs down, being negative for nothing is bad for you. The young went out of his way to help you and you put your thumbs down. Be grateful even if it is not going to benefit you.
Thank you so much. I have been searching for every video to find the reason why IRR> Hurdle rate accept the investment. Looking at in the graph now makes perfect sense! You are a GENIUS.
People always love precise explanations....you are an example....I couldn't get this Topic going thru it all day... until I found this video link there....thank you 👍
Thanks man for this great video. I just wanted to say it is not algebraically impossible to get the IRR from the discounted cash flow formula. You can actually get it by using a basic algebra. First, you need to simplify the equation and then by using the delta formula you can get the r. It can be solved in under 3mins easily.
Great explanation. Two things: 1. I always challenge the conclusion that if the project NPV = $0 you would be indifferent. I don't agree. If your project NPV = $0 that means that it is meeting your required return, so you would want to do it. I know all the books say that the conclusion is what you stated, but the practical application is that you would do it if you had the capital resources! 2. If you do this video again at some point, I would add in that the graph is called an NPV profile. Just because many of the books use that term and students may be looking for it.
Not necessarily. Required Return is how much capital costs you on average. So for example, if you take on debt and it costs you 6%, is there really a point on taking on a project that's going to only pay you 6%?
@@AllThingsMathematics Good point. If required return is your cost of capital I agree. I guess I was thinking of it more as a hurdle rate. I've seen it used more as that in practice but totally with you on the response. I need to go back to the technical definition. Thanks. I just found your channel and am so impressed with your teaching style and explanations. GREAT work.
Great post! But I'm not sure how you can rely on try and error on an exam in grad school. You have to algebraically solve for r, which is a little tedious but very possible. You should try that, or lets touch base, and I can be of help with that. FYI I'm a Senior focusing on Math and Economics.
Exact numbers always sound authoritative, but in Financial Math, future numbers are never certain anyway... so, calculating "exactness" can actually be misleading and deceptive instead of clarifying and exact (for some reason, I always used putting people on the moon as my classroom example// your math has to be accurate or you miss the moon, but if you are selling investments to people you always have to have some "if" out there that says all bets are off or this is expected, but anything can actually happen. ***so, ethics training can be hard where people can make money with honest fair representation, or... they have no character.
you're right, in this specific example you can because the years only go up to 2, so you can solve with a quadratic formula after some heavy manipulation.....I was more so referring to NPV questions in general, because any years above 2, you can't do it algebraically by hand...and usually these types of questions will be more than 2 years. Thanks for the heads up tho :) (P.S. thats a dope name lol)
You actually explained it much better than my teacher. I just think it's a little sad that you used a (financial)calculator to get the irr. There actually is a method that doesn't include trial and error (it does bit only a little) to get the value. Would've been nice if you'd explained that :/ Still nice video tho!
Thanks for the explanation, but actually we can calculate the IRR algebraically . How: IRR=ra+(NPVa/(NPVa-NPVb))*(rb-ra) note that NPVa, ra are positive and NPVb, rb are negative. Let's apply the formula on the example you gave: 10%+(4.13/(4.13+2.46))*(15%-10%)=13.13% Please not I put +2.46 because it's - and - is a +. Thanks
nice video, we did not have the IRR key back in my college days, but we did have spreadsheets which once set up for what if analysis made all those rate guesses quick calculations. (Lotus 123 back in those days, long before numbers, excel, or others today)
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If you're looking for these finance videos organized by chapter, below is the course URL :)
www.allthingsmathematics.com/p/ryersonfin300
The plotting of NPV's on a chart made understanding the concept of IRR a breeze, and then how to use IRR to accept or reject a project. One of the best presentations I've seen on making a complex topic simple, thank you!
I concur
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Dude....it is unreal how much better you are at explaining this information than other people. It's a real gift and I hope you continue to share it with us.
You provide a level of clarity I've been missing from class! Thx for taking the time to provide this instruction.
I concur
I was struggling with IRR BEFORE MY EXAMS AND I WATCHED UR VIDEO AND SMASHED THE PAPER
@5:43 It's actually very easy to solve this algebraically. It becomes −100+60/(r+1)+60/(r+1)(r+1) =0 and then solve for "r". Knowing that is a quadratic equation would only trouble someone who doesn't understand the concept of an IRR. If the total sum of projected cashflow is greater than the initial investment/cost, then IRR is always going to be a positive rate. Thus, you should ignore the negative solution to your quadratic equation. Also, Excel has an IRR function that can do all this for you in case you want to double-check your work.
Cheers!
Best clear demonstration I have seen so far. Thank you.
As a recent grad I still rely on these videos to help perfect my skills. Keep them going! Love it
5:34 - You can solve this algebraically. Make (1+r) = X, solve for X and subtract 1 from X.
Clever
You explain this so clearly - I finally understand it. Thank you!
he is awesome. He is making it looks so easy. For 31 people with thumbs down, being negative for nothing is bad for you. The young went out of his way to help you and you put your thumbs down. Be grateful even if it is not going to benefit you.
Thank you so much. I have been searching for every video to find the reason why IRR> Hurdle rate accept the investment. Looking at in the graph now makes perfect sense! You are a GENIUS.
That graphing of NPV and IRR on a chart made is easily understandable! Kudos for coming up with strategy that helps better explanation of a concept
Peace out , you are my favorite CF and Accounting teacher on youtube. Thank you for the great work.
Thanks man, took me many years to understand IRR, now everything is clear.
Thanks so much for this. This was the best, clearest explanation of IRR I've come across so far. Thank you!
Thank you :)
Man, seriously this is the only video that made me understand the relationship between NPV and IRR. Thank you very much.
From all the videos on IRR, here is where I found my answer. Such a simple explanation!
Splendid explanation of the NPV and IRR concept. Thank you so much.
Thanks :)
This is so much easier to understand how to calculate IRR without excel thank you!
You make understanding my financial management module so much easier! Thank you so much
explained very well, came looking for a simple definition, left with an understanding of multiple concepts
You're the real deal men. Your teaching is so fluid. Thanks and very much appreciated
BEAUTIFULLY EXPLAINED, THANK YOU. THIS GAVE ME HOPE OF ACTUALLY PASSING MY COURSE.
People always love precise explanations....you are an example....I couldn't get this Topic going thru it all day... until I found this video link there....thank you 👍
Most thorough video of IRR I've seen
You are brilliant in your teaching! You really helped me out!
2022 checking in. Great video! Very clear and well explained.
So simply explained , thanks
You're welcome :)
Awesome explanation of the IRR concept in a very clear and concise way, thank you very much!
Thanks man for this great video. I just wanted to say it is not algebraically impossible to get the IRR from the discounted cash flow formula. You can actually get it by using a basic algebra. First, you need to simplify the equation and then by using the delta formula you can get the r. It can be solved in under 3mins easily.
Thank you!! This bugged me so much! If it were impossible how does he think the calculator works?! XD
Wow.. you're really a genius 💯 honestly the way you approach each topic... That's systematic analysis way of learning... You're a geniuss..
thank you so much you explained the IRR clearly and it made sense.
You're welcome, glad the vid helped :)
excellent especially where you graph it out it sorta gives a more visual understanding compared to the theory most offer
thank you so much its very clear video about IRR as compare to all other videos on TH-cam
wow finally some much needed clarity. thank you
I was struggling with figuring out the IRR in my financial calculator!!! TYVM
Agree with the previous comments, this video helps to conceptualize the IRR. Much thanks!
Thank you for this amazing explanation!
You're welcome :)
You are an excellent teacher! This was very clearly explained, thank you!
Great explanation as I have been battling to understand this IRR concept...
Wonderfully explained... Thank you
Cheers from Mumbai
Thank you so much for using the graph in your explanation.
Needed this refresher! Thank you for clearly explaining.
Yeah you are really great because of you I can understand very well NPV and IRR. Thank you so much.
Very good introduction, clear!
I have watched a couple of his videos and he is very good at explaining things.
Superb... is an understatement for this piece of work. Hats off!...
U explained it clearly
thank you :)
the explanation is very simple, thanks a lot for that simple example. well done
you made it sounds so easy,thx
Just wanted to say thank you for a solid useful video.
Thank you very much for the detailed explanation! It is much appreciated!
You are very good at teaching..thank you for all precise explanations.
I hope your channel grows fast.
Great explanation. Two things:
1. I always challenge the conclusion that if the project NPV = $0 you would be indifferent. I don't agree. If your project NPV = $0 that means that it is meeting your required return, so you would want to do it. I know all the books say that the conclusion is what you stated, but the practical application is that you would do it if you had the capital resources!
2. If you do this video again at some point, I would add in that the graph is called an NPV profile. Just because many of the books use that term and students may be looking for it.
Not necessarily. Required Return is how much capital costs you on average. So for example, if you take on debt and it costs you 6%, is there really a point on taking on a project that's going to only pay you 6%?
@@AllThingsMathematics Good point. If required return is your cost of capital I agree. I guess I was thinking of it more as a hurdle rate. I've seen it used more as that in practice but totally with you on the response. I need to go back to the technical definition. Thanks. I just found your channel and am so impressed with your teaching style and explanations. GREAT work.
It’s also reverse for investors. Most investors want a higher rate of return so they are more apt to do a deal.
Chart simplified IRR
Formula gives more accurate answer.
Thank you for explaination.
Thank you for the video.
you're welcome :)
straightforward simple and helpful, thank you very much
Great post! But I'm not sure how you can rely on try and error on an exam in grad school. You have to algebraically solve for r, which is a little tedious but very possible. You should try that, or lets touch base, and I can be of help with that. FYI I'm a Senior focusing on Math and Economics.
Exact numbers always sound authoritative, but in Financial Math, future numbers are never certain anyway... so, calculating "exactness" can actually be misleading and deceptive instead of clarifying and exact (for some reason, I always used putting people on the moon as my classroom example// your math has to be accurate or you miss the moon, but if you are selling investments to people you always have to have some "if" out there that says all bets are off or this is expected, but anything can actually happen. ***so, ethics training can be hard where people can make money with honest fair representation, or... they have no character.
Thank you so much this was really helpful!
glad it helped :)
Thanks a lot, it has really helped me now that I don't have time for class.
Appreciated your clarity in explaining the topic. Thanks!
Thank you very much brother...this is very much helpful
Perfect explanation
Great explanation! Thanks!!
Sir, can you do videos on job costing, contract costing, batch costing, leverages, standard costing, unit costing, ESOPs...
you're awesome, this made so much sense
Not gonna lie, was a little thrown off by the SnapBack but ure a good teacher bc I understood everything immediately daMN BOI!
well explained
thanks :)
I agree with Mr. Hing (comment below me) this was helpful- especially since I am a finance student. I need all the help I can get.
Superb explanation,keep up the good work.
Very well explained. Good job!
Fantastic explanation!
Thank you :)
wow its a
nice presentation. tnx!
Thank you very much. God bless you for helping us.
Very simple, You are the best. thank you.
splendid presentation
Good presentation
Great video, Things made so simple
A very good explanation keep it up
you are great explainer! Thank you very much!
Solid, thank you!
Nice job!
good work, well explained. thank you
thank you for your explanation.
thanks alot am really happy this video is very helpful for
Thank you for the explanation.. just a minor correction, it is possible to calculate r abrageically =).
How to calculate it algebraically
There are 2 variables
how's that possible??
you're right, in this specific example you can because the years only go up to 2, so you can solve with a quadratic formula after some heavy manipulation.....I was more so referring to NPV questions in general, because any years above 2, you can't do it algebraically by hand...and usually these types of questions will be more than 2 years. Thanks for the heads up tho :) (P.S. thats a dope name lol)
You actually explained it much better than my teacher. I just think it's a little sad that you used a (financial)calculator to get the irr.
There actually is a method that doesn't include trial and error (it does bit only a little) to get the value. Would've been nice if you'd explained that :/
Still nice video tho!
thanks so much! great video
Thanks for the explanation, but actually we can calculate the IRR algebraically . How:
IRR=ra+(NPVa/(NPVa-NPVb))*(rb-ra) note that NPVa, ra are positive and NPVb, rb are negative.
Let's apply the formula on the example you gave: 10%+(4.13/(4.13+2.46))*(15%-10%)=13.13%
Please not I put +2.46 because it's - and - is a +.
Thanks
I'm thrown off by the term 'discount rate'. What does that refer to? All expenses related to the investment? Great video, Thanks!
nice video, we did not have the IRR key back in my college days, but we did have spreadsheets which once set up for what if analysis made all those rate guesses quick calculations. (Lotus 123 back in those days, long before numbers, excel, or others today)
Terrific teacher!
Keep up the good work (Y)
What ever be the order of the equation , it can be easily solved numerically...
What if the gradient of the NPV-Rate curve is negative? in that way, IRR is smaller than the required rate of return when NPV is positive.
Very helpful 👌
Nicely done.
Thank you so much .. you are amazing
Awesome, I do understand now!!!!!