A project is estimated to cost $191,850 and provide annual net cash flows of $50,000 for eight 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 | 3.352 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.784 | 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.
%
| Particulars | PV@6% | PV@10% | PV@12% | PV@15% | PV@20% | |
| Gross total upto 8 Year from Given table | 6.21 | 5.335 | 4.968 | 4.487 | 3.837 | |
| Internal rate of Return = | ||||||
| NPV of Cash flow= Initial value of cash outflow | ||||||
| on the basis of Trial and run method | ||||||
| Cash Out flow initialy | 191850.00 | |||||
| Cash inflow every year | 50000 | |||||
| So, | 191850/50000 | |||||
| 3.837 | ||||||
| Ans | hence IRR= 20% | |||||
| Cash Inflow in 8 year = 50000 x 3.837 | 191850 |
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