The IRR function returns the Internal Rate of Return for a supplied series of periodic cash flows, i.e. a set of values, which includes an initial investment value and a series of net income values.
Syntax
=IRR(values,[est_irr])
Arguments
Argument  Description 

values  A range of cells that represent the series of cash flows 
[est_irr]  Optional. It is your guess at the internal rate of return. If this parameter is omitted, it assumes an [est_irr] of 0.1 or 10% 
Note: Excel tries to recalculate the IRR until the result is accurate within 0.00001 percent. If after 20 tries Excel has not calculated an accurate value, it will return the #NUM! error.
Examples
A  B  C  

1  Data  
2  $7,500  Initial investment  
3  $3,000  Income (yr 1)  
4  $5,000  Income (yr 2)  
5  $1,200  Income (yr 3)  
6  $4,000  Income (yr 4)  
7  $3,800  Income (yr 5)  
8  
9  Formula  Result  Notes 
10  =IRR(A2:A5)  12.16%  Investment’s internal rate of return after 3 years 
11  =IRR(A2:A7)  35.04%  Investment’s internal rate of return after 5 years 
12  IRR(A2:A4,10%)  4.06%  To calculate the internal rate of return after two years, you need to include a guess, in this example, 10% 
Cash Flow Convention: In line with general cash flow conventions, outgoing payments are represented by negative numbers and incoming payments are represented by positive numbers.
Common Function Error(s)
Problem  What went wrong  

#NUM!  Occurs if:

The Internal Rate of Return (IRR) indicates the profitability of an investment and therefore is commonly used in business, when choosing between investments.
This measurement uses a series of cash flows (including an initial investment, along with the net income) over a number of periods, to calculate the compounded return, assuming the Net Present Value of the investment is zero.
The value of the IRR is calculated as the value of r that satisfies the following equation:
where:
 C_{n} = a series of cash flows
 N = the number of periods over which the returns have been made
A full explanation of the IRR can be found on the Wikipedia Internal Rate of Return page.