Elementary IRR Question

[Julie N.]

I told myself I wanted to have a firm grasp on IRR and have been researching online. I feel like it's easy to over complicate this and I've confused myself unfortunately :)..

The definition of IRR being the discount rate that makes NPV equal to 0 makes sense to me. The concept of NPV and discounting cash flows makes sense to me. What I don't understand is when IRR is referred to as a compounding annual rate of return.

I read this example and it threw me off.. "Abel sells land for $20,000 that he bought 4 years earlier for $10,000. The internal rate of return was 19%. That is the annual rate which compound interest much be paid for $10,000 to become $20,000 in 4 years"  

What about a scenario with multiple cash flows? For instance with an investment then with 5 years cash flows yielding 26.9% IRR.

($957,900)

,

$87,964,

$112,892,

$131,070,

$119,800,

$2,336,368,

26.95576%

Shouldn't you in principal be able to compound $957k annually by 26.9% and arrive at the same total amount as the total of the cash flows received over the hold? In the example above I know I am missing something as the total of the cash flows is $2.788M vs the simple compound interest of $957,900 over 5 years at 26.9557% is $3.159m.

Thanks for helping me clear this up!