If the payments are made annually, the next step is straightforward. Use the =IRR () function in your spreadsheet to calculate the interest rate of the capital lease.

Learn how to calculate the internal rate of return (IRR) in Excel and how it’s used to determine whether a capital investment can be profitable.

The internal rate of return (IRR) is a metric used in capital budgeting to estimate the return of potential investments. Here is the formula for calculating it.

Earlier, we had seen how the RATE function can be used to calculate the return on investments, whether lump-sum or periodic. This can come in handy in the calculation of SIP returns, too.