The formula for the IRR calculation is:
MVE = MVB x (1 + IRR) + CF1 x (1 + IRR) W1 … + CFn x (1+ IRR) Wn
where:
MVE is market value ending
MVB is market value beginning
IRR is internal rate of return
CF is cash flow amount
W is weight (Number of Days Cash Flow is Present) / (Num of Days in Period)
The time-of-day assumption is important to determine the proper weight. Below are the most common assumptions:
Beginning of Day. Present for the date of the cash flow
Middle of Day. Present for half of the date of the cash flow
End of Day. Present after the date of the cash flow
Examples of the time-of-day assumptions are:
Beginning of Day. Number of Days between Cash flow Date and Begin Date + 1
Middle of Day. Number of Days between Cash flow Date and Begin Date + 0.5
End of Day. Number of Days between Cash flow Date and Begin Date