Question

Find the minimum and maximum internal rate of return for the following cash flow.

Year	Cash flow
0	-4,000
1	2,000
2	2,000
3	-2,000
4	1,900
5	900
6	200

Answer 1

Answer::

IRR is the rate at which NPV=0

NPV at gess rates L1=10% & L2=20%

Year	Cash flows	PVF@10%	Cash flows@10%	PVF@40%	Cash flows@40%
0	(4000)	1	(4000)	1	(4000)
1	2000	0.9090	1818	0.7142	1428
2	2000	0.8264	1653	0.5102	1020
3	2000	0.7513	1503	0.3644	728
4	1900	0.6830	1298	0.2603	494
5	900	0.6209	559	0.1859	167
6	200	0.5644	113	0.1328	26
			2944		(134)

IRR = L1+NPV at L1/(NPV at L1-NPV at L2)*(L2-L1)

=10+2944/[2944-(134)]*(40-10)

=10+2944/3078*30

=38.69%