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Why do you have to exclude year 0 in excel when calculating NPV, but not when calculating IRR?


When trying to calculate NPV in Excel, you must exclude the initial investment (year 0) in the formula, and add back this value at the end. Why don't you do the same thing (meaning: exclude year 0) for IRR formula calculation?

NPV is Net Present Value. The technique takes a stream of future payments and discounts by an interest rate to determine what that future stream is worth now. There is no year zero, because that's right now. So the first value will be a payment for the next period or period 1.
IRR is the Internal Rate of Return. Here we're looking for a percentage rate where a future stream of payments will equal an outlay of money today. The money today is considered period zero. It's similiar to NPV but here we're looking for the rate, whereas in NPV we provide the rate.

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