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I am using a spreadsheet's XIRR function to calculate the money-weighted rate of return (MWRR) of my investment in "X Corporation" stock. X conducted a spinoff of "Y Corporation". Shareholders of X received one share of Y for each share of X that they own. Suppose the shares of Y closed at $10 on the first day of trading. If I owned 500 shares of X and received 500 shares of Y, do I consider the Y stock to be a similar to a $5000 cash dividend when calculating the MWRR for my investment in X? If not, how do I account for spinoffs when calculating MWRR?

2 Answers 2

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IRR typically measures cash flows, so I would not do anything with the spinoff except adjust the ending value (last "cash flow") unless you actually sell the shares.

So if you get 500 shares of Y as a spinoff (plus I would expect that shares of X went down somewhat similarly), and you don't cash them out (otherwise that would be the cash flow), then I would add that to the terminal value when calculating IRR.

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  • "I would add that [Y] to the terminal value when calculating IRR [of X]" — Wouldn't that mean I have to track both X and Y when I am only interested in calculating the returns from X, separate from any other stocks?
    – Flux
    Commented Nov 14, 2022 at 17:26
  • Well in that case yes you could treat Y as if you sold it (i.e. like a dividend), treating it as a cash inflow. It might skew your "return" on X though if the value of X goes down as a result. But you could try it both ways and see what makes more sense to you.
    – D Stanley
    Commented Nov 14, 2022 at 18:43
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The return is the total return of X and Y together. If you buy a plot of land of farmland and decide to put a fence down the middle, the yield of the land is still the total yield of the land. Similarly, if a corporation gets split into two parts, the return is still the total of those two parts.

do I consider the Y stock to be a similar to a $5000 cash dividend when calculating the MWRR for my investment in X?

Only if you're calculating the return as of the end of the first day of trading after the spinoff.

Responding to your comment

Wouldn't that mean I have to track both X and Y when I am only interested in calculating the returns from X, separate from any other stocks?

If we call X before the split X_0 and X after the split X_1, and Y after the split Y_1, then X_0 is turning into X_1 and Y_1. X_1 is not the same stock as X_0, so if you're interested in tracking X_0, then you should track both X_1 and Y_1.

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