Javascript IRR (Internal rate of return) Formula Accuracy

Question

I\'m using a IRR function in javascript to create calculation a that is done in excel using its own IRR function. The problem is mine is little off and I have no idea why. Here\

Answer 1

Don't set your min IRR to 0. That is what bounds your answer. Try allowing it to go negative. Also don't try to calc an IRR on one number.

Answer 2

Try this.

function NPV(discountRate, cashFlow){
    var npv = 0;
    for(var t = 0; t < cashFlow.length; t++) {
        npv += cashFlow[t] / Math.pow((1+ discountRate),t);
    }
    return npv;
}


function IRR(cashFlow,guess){
    guess = guess ? guess : 0.1;
    var npv;
    var cnt = 0;
    do
    {
        npv = NPV(guess,cashFlow);
        guess+= 0.001;

        cnt++;
    }
    while(npv > 0)

    return guess;
}

Answer 3

It's a floating point issue to be sure. You're going to want to use a library like BigDecimal.js to handle your values. It's really the only way to avoid this issue.

Answer 4

I would like to build on from @Zohaib Answer, but what I would like to do is show undefined where appropriate. The best I can do is get it to equal to zero. I am using this simple dataset irr_arr=[-100, 100, 100, 100, 100,100]. I would appreciate some advice.

//IRRCALC funtion that handles irr going to infinity 

function IRRCalc_test(CArray) {

  min = 0.0;
  max = 1.0;
  c=0;
  do {
    guest = (min + max) / 2;
    NPV = 0;
    for (var j=0; j<CArray.length; j++) {
          NPV += CArray[j]/Math.pow((1+guest),j);
    }
    if (NPV > 0) {
      min = guest;
      c++; 
    }
    else {
      max = guest;
      c++;
    }

    if(c>=15){ return guest*100; }
  } while(Math.abs(NPV) > 0.000001);
  return guest*100;
}


// some testing 

irr_arr=[-100, 100, 100, 100, 100,100]
irr_res_arr_expected=[0,0,61.8,83.93,92.76,96.6]
for(i=1;i<=irr_arr.length;i++){
console.log("irr_arr - ",irr_arr.slice(0,i));
console.log("IRRCalc - ",IRRCalc(irr_arr.slice(0,i)))
//console.log("irr_expected - ", irr_res_arr_expected[i-1])
//if(IRRCalc(irr_arr.slice(0,i))===parseFloat(irr_res_arr_expected[i-1]).toFixed(2)){console.log(i,"- TRUE")} else {console.log(i,"- FALSE")}
}

this is the output

irr_arr -  [-100]
IRRCalc -  0.00      <<<<<<<<<<<<<<<<<<<------- this should be 'undefined' and not 'zero'
irr_arr -  [-100, 100]
IRRCalc -  0.00
irr_arr -  [-100, 100, 100]
IRRCalc -  61.80
irr_arr -  [-100, 100, 100, 100]
IRRCalc -  83.93
irr_arr -  [-100, 100, 100, 100, 100]
IRRCalc -  92.76
irr_arr -  [-100, 100, 100, 100, 100, 100]
IRRCalc -  96.60

here is the excel of what I am trying to produce

Answer 5

We modified the code to achieve performance and accuracy. Try this:

function IRRCalc(CArray) {

  min = 0.0;
  max = 1.0;
  do {
    guest = (min + max) / 2;
    NPV = 0;
    for (var j=0; j<CArray.length; j++) {
          NPV += CArray[j]/Math.pow((1+guest),j);
    }
    if (NPV > 0) {
      min = guest;
    }
    else {
      max = guest;
    }
  } while(Math.abs(NPV) > 0.000001);
  return guest * 100;
}

Answer 6

After a quick skim read through your code, the error seems to be related to floating point precision error. More information can be found here: http://ajaxian.com/archives/crock-on-floating-points-in-javascript

In older javascript engines, if you did 0.3 + 0.3 you get something like 0.600000000001

Though most javascript engines today return 0.6, under the hood, the problem remains. Adding floats together causes unexpected results. So in your case the

inc = 0.000001;
guest += inc;

seems to me, to be the problem.

A way to solve this would be to use whole numbers. So instead of 0.000001 you would use 1 and instead of 0.001 you would use 1000. Then divide your return result by 100000