A project is estimated to cost $77,766 and provide annual net cash flows of $26,000 for five years.
| Present Value of an Annuity of $1 at Compound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.785 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown above.
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| 6% | 10% | 12% | 15% | 20% | ||
| Present Value of an Annuity of $1 at Compound Interest 5Years | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 | |
| Cash Inflow | 26000 | 26000 | 26000 | 26000 | 26000 | |
| Present Value of Cash Flow (PVAF*Cash Flow) | 109512 | 98566 | 93730 | 87178 | 77766 | |
| IRR will be 20% since at IRR, PV of cash flow should be equal to Outflow. IRR is a rate where NPV is zero. | ||||||
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