Question

For the project shown in the following​ table,

calculate the internal rate of return ​(IRR). Then​ indicate, for the​ project, the maximum cost of capital that the firm could have and still find the IRR acceptable.

Initial investment ​(CF 0CF0​)	​$80,000
Year ​(t​)	Cash inflows ​(CF Subscript tCFt​)
1	​$25,000
2	​$45,000
3	​$30,000
4	​$30,000
5	​$15,000

Answer 1

Ans 25.88%

Year	Project Cash Flows (i)	DF@ 10%	DF@ 10% (ii)	PV of Project ( (i) * (ii) )	DF@ 30% (iii)	PV of Project ( (i) * (iii) )
0	-80000	1	1	(80,000.00)	1	(80,000.00)
1	25000	1/((1+10%)^1)	0.909	22,727.27	0.769	19,230.77
2	45000	1/((1+10%)^2)	0.826	37,190.08	0.592	26,627.22
3	30000	1/((1+10%)^3)	0.751	22,539.44	0.455	13,654.98
4	30000	1/((1+10%)^4)	0.683	20,490.40	0.350	10,503.83
5	15000	1/((1+10%)^5)	0.621	9,313.82	0.269	4,039.94
	25.88%	NPV	32,261.02	NPV	(5,943.26)
	IRR =	Ra + NPVa / (NPVa - NPVb) * (Rb - Ra)
		10% + 32261.02 / (32261.02 + 5943.26)*20%
		25.88%