Question

The cash flows for project mix commercial mixer at Diana’s donut shop as follows: End-of-year cash flows Year 0: – 900, year 1: 400, year 2: 300, year 3: 150 The firm’s WACC is 10%. What is the IRR for project commercial mixer? Please show your work, don’t just show excel formula.

Answer 1

Given

Year	Cash flow
0	-900
1	400
2	300
3	150

Let r be the IRR for this project

So at IRR NPV=0

Sum of PV of All cash flow=0

PV=CF/(1+r)^n

CF =cash flow

r=IRR

n =Year in whicA business that calculates a negative IRR for a prospective investment should not make the investment.h cash flow occur

-900/(1+r)^0+400/(1+r)^1+300/(1+r)^2+150/(1+r)^3=0

so solving for r we IRR=-3.28%

When the aggregate amount of cash flows caused by an investment is less than the amount of the initial investment then negative IRR occur.A business that calculates a negative IRR for a prospective investment should not make the investment.