The IRR formula finds a discount rate that makes the NPV of a series of cash flows equal 0.
To calculate IRR using the solver, basically, you need to:
1) Have a single cell that contains an interest rate (let's put it in A1)
2) Have your series of nominal cash flows (let's say that's in Row 2)
3) Discount those cash flows to their Present Value using the discount rate defined in A1 (let's say this series of discounted cash flows is in Row 3)
4) Sum the discounted cash flows of Row 3. Let's put this in A4
5) Now, let's use the solver under Data-->What-If-Analysis-->Goal Seek...
--Set cell: A4 (remember, this is the NPV of our series of cash flows)
--To value: 0 (remember, this is what IRR does...find the interest rate that makes the NPV of the cash flows 0)
--By Changing cell: A1 (this is that interest rate all the cash flows are being discounted by)
Excel will sputter and chug, and eventually, it should find a value of A1 that makes A4 equal 0. You can check it by running the IRR of row 2--though you can't always be sure because IRR can have multiple solutions sometimes.
I already know how to calculate it using the IRR function on Excel.
