Question

What is the IRR of the following set of cash flows?

  

Year   Cash Flow

0   –$9,496

1   6,500

2   3,400

3   3,900

Answer 1

IRR is obtained from trial and error method we have to fix such rate for discount that it forces NPV = 0 or sum of all cash flows equal to zero

IRR = 24.02099%

IRR = 24.02% (two digit rounding)

	IRR = R =	24.02099%	Present Values
Year	Cash flows	Discount factor or PV factors = Df = 1/(1+R)^Year	PV of cash flows =  Cash flows x Df
0	-$9,496.00	1.000000	-$9,496.00
1	$6,500.00	0.806315	$5,241.05
2	$3,400.00	0.650144	$2,210.49
3	$3,900.00	0.524221	$2,044.46
		Total of Present values = NPV =	$0.0000